INTERNATIONAL JOURNAL OF SCIENTIFIC RESEARCHERS
ISSN: 3030-332X Impact factor: 8,293
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BREAK-EVEN ANALYSIS FOR BANKING INSTITUTIONS
Fayoz Fayzullaev
fayzullayev.fayoz418@gmail.com
Student of Navoi State University of
Mining and Technology
Abstract:
The break-even point represents the level of business activity at which total revenue
equals total costs, resulting in neither profit nor loss—only the fixed costs are fully recovered.
Traditionally, break-even analysis has been applied primarily to products, with limited attention
given to the services sector, such as banking institutions. This research paper introduces a new
formula and methodology specifically tailored to determine the break-even point for banks. It
identifies the volume of lending and deposit activities required to cover fixed costs and further
allows the calculation of the volume needed to achieve a targeted profit level.
Keywords:
Banking Breakeven Point, Banking breaks even lending, Break even deposit
amount , Break even deposit interest and break even lending interest
Break-Even Analysis is a financial tool used to determine the point at which total revenue
equals total costs, meaning the business is not making a profit or loss. This point is known as
the Break-Even Point (BEP). In other words, BEP shows how much sales volume (or loan
disbursement in banking) is needed to cover all fixed and variable costs. Beyond this point, the
organization starts making a profit.
Break-even analysis is a financial tool that is used by businesses to determine the point at which
they will generate enough revenue to cover their fixed and variable costs. This analysis is
essential for companies to determine their pricing strategies, understand their cost structure, and
plan their operations and investments effectively.
At its core, break-even analysis involves calculating the break-even point (BEP), which is the
point at which a business neither makes a profit nor a loss. To calculate the BEP, a business
needs to identify its fixed costs, which are costs that do not vary with the level of production or
sales, and its variable costs, which are costs that do vary with the level of production or sales.
The total cost is the sum of the fixed and variable costs, while the total revenue is the price of
the product or service multiplied by the quantity sold.
Fixed Costs (FC)
= Costs that do not change with output level, e.g., rent, salaries,
infrastructure.
Variable Costs (VC)
= Costs that change directly with production or service volume, e.g.,
interest on deposits.
Selling Price (SP)
= The price at which goods/services are sold. In banking, it could be the
lending rate.
Contribution Margin (CM)
= The difference between selling price and variable cost per unit.
Break-Even Point (BEP)
= The point at which Total Revenue = Total Cost (Profit = 0).
INTERNATIONAL JOURNAL OF SCIENTIFIC RESEARCHERS
ISSN: 3030-332X Impact factor: 8,293
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Marginal Contribution –
This is the difference between sales revenue and variable costs. It
shows how much each unit (or each dollar) of revenue contributes toward covering the fixed
costs and eventually generating profit.
P/V Ratio (Profit/Volume Ratio) –
This represents the proportion of marginal contribution to
total sales. In other words, it shows what percentage of each dollar of sales remains as marginal
profit after covering variable costs.
Break-Even Point Calculation for Banking Institution
Break-Even Point, refers to the level of output or income at which there is no profit and no loss.
In the manufacturing sector, it represents the production volume where total revenue equals
total costs. Similarly, in the banking sector, it signifies the income level at which a bank covers
all its costs without incurring a profit or a loss. This point is known as the bank’s break-even
point.
Understanding and calculating the break-even point is highly valuable in risk management, as it
aids in both identifying risks and developing strategies to reduce business risk. Since banking
falls under the services sector—and does not involve physical product manufacturing—its
services primarily include deposit mobilization and lending operations.
There is typically a margin between the deposit rate (considered as a direct expense) and the
lending rate (viewed as the selling price). The difference between these two gives us the
contribution margin, which helps in determining profitability. Therefore, in this context, the
contribution must be sufficient to cover both fixed costs and the desired profit.
The BEP can be calculated using the following formula:
To perform a breakeven analysis in the banking sector, the following assumptions are made:
Fixed Costs: UZS 1,000,000,000 (1 billion UZS)
Lending Interest Rate: 26%
Deposit Interest Rate: 20%
�������� ������������ (��) = ������� ���� − ����������
(��) = ��% − ��% = �%
This means that for every 1 soum mobilized as a deposit and lent out, the bank earns 6 tiyin as
net interest income.
��������� ����� =
����� �����
�������� ������������ (��)
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ISSN: 3030-332X Impact factor: 8,293
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��� =
� ��� ��� ���
�. ��
= �� ��� ��� ��� ���
Thus, the bank must operate at a loan portfolio level of UZS 16.67 billion to recover its fixed
costs and reach the break-even threshold.
�/� ����� =
�������� ������������ (��)
������� ����
�/� ����� =
�%
��% = ��. ��%
That is, approximately 23.08% of each soum earned from lending contributes to fixed cost
recovery and eventual profit.
This is how the break-even point is represented on a graph
In conclusion, Break-even analysis is a powerful financial management tool. Whether you're
producing goods or providing services (like banking), it helps answer a vital question:
"At what point do we stop losing money and start earning profit?"
Break-even analysis plays a crucial role in business decision-making. It assists in pricing, cost
control, and sales planning by identifying the minimum sales volume required to avoid losses.
Through risk analysis, it highlights the level of operational and financial risk involved before
reaching profitability, helping managers prepare for potential challenges. In terms of profit
planning, break-even analysis enables businesses to forecast expected profits at different sales
levels, supporting strategic goal setting. Moreover, it provides insights into the financial health
INTERNATIONAL JOURNAL OF SCIENTIFIC RESEARCHERS
ISSN: 3030-332X Impact factor: 8,293
Volume 11, issue 2, May 2025
https://wordlyknowledge.uz/index.php/IJSR
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Index:
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of an organization by revealing how sustainable and viable the current business model is over
the long term.
References:
1. Rose, P. S., & Hudgins, S. C. (2012). Bank Management & Financial Services. McGraw-
Hill Education.
2. Horngren, C. T., Sundem, G. L., & Stratton, W. O. (2005). Introduction to Management
Accounting. Pearson Prentice Hall.
3. Mishkin, F. S. (2015). The Economics of Money, Banking and Financial Markets. Pearson
Education.
4. Pandey, I. M. (2009). Financial Management. Vikas Publishing House.
5. Reserve Bank of India. (2012). Report on Trend and Progress of Banking in India.
