More than a place to keep cash
- Understand what an account balance represents.
- See the two sides of a bank loan.
- Distinguish a commercial bank from the Bank of Mauritius.
A commercial bank provides accounts, makes payments and extends credit. When a salary reaches an account, the customer can usually use the balance to pay bills, transfer money or withdraw cash, subject to account terms. Different accounts can have different fees, interest rates, notice periods and withdrawal restrictions.
Your account balance is a claim on the bank: the bank owes that amount to you. It is an asset from your perspective and a liability from the bank’s perspective. It is not normally a separately labelled pile of notes held in a vault for each customer. Banks hold various assets and manage the money needed to meet payments and withdrawals.
A loan creates two entries
Suppose a bank grants a hypothetical Rs 100,000 loan and credits the borrower’s account. At that moment, the bank records a Rs 100,000 loan asset—the borrower’s obligation to repay—and a Rs 100,000 deposit liability—the new account balance it owes the borrower. For the borrower, the deposit is an asset and the loan is a debt.
This accounting illustrates why lending can create deposits. It does not mean a bank can create unlimited purchasing power without consequences. It must assess repayment risk, meet capital and liquidity requirements, fund its activities and settle outgoing payments. Lending is also constrained by demand from creditworthy borrowers and the price of funding.
What happens when the borrower spends?
If the borrower pays a supplier at another bank, the original bank must arrange settlement with that bank. A customer deposit moving elsewhere affects the bank’s funding and liquidity. Creating a loan entry is therefore not the same as having unlimited resources to make payments to other banks.
Customer deposits are an important funding source, alongside other funding arrangements. Banks also hold liquid assets and manage expected inflows and outflows. The exact settlement process is more detailed than this beginner model; the key distinction is between the customer’s account balance and the bank’s resources for settling payments.
How a bank earns money—and can lose it
A bank may earn interest on loans and securities and charge fees for services. It may pay interest on deposits or other borrowing. The difference between interest earned and interest paid helps cover operating costs, credit losses and other expenses. It is not all profit: staff, systems, premises, regulation and unpaid loans cost money.
Credit risk is the possibility that a borrower does not repay as agreed. Liquidity risk is the possibility that a bank cannot meet payments when due, even if it owns valuable assets. Capital is the bank’s loss-absorbing funding, distinct from customer deposits. These concepts explain why a profitable-looking loan can still be too risky for a bank to make.
Where the Bank of Mauritius fits
The Bank of Mauritius is the country’s central bank. Its official role includes monetary policy and responsibilities relating to financial stability, banking supervision and payment systems. It is different from the commercial bank where a household normally opens a current account or applies for a loan.
Central-bank policy can influence funding conditions and the interest rates available in the economy. A policy-rate change does not mean every personal loan changes immediately or by exactly the same amount. Whether a customer’s repayment changes depends on the contract, the benchmark used, the margin and the timing of rate reviews.
What to check as a customer
- Account: fees, access to money, interest conditions and transaction limits.
- Loan: repayment schedule, total cost, rate changes and security requirements.
- Institution: verify its status using official sources and read the actual terms.
This diagram is a simplified explanation of banking, not a statement that all accounts have the same protections or all loans follow the same conditions. Use the bank’s written agreement for your product and official Mauritian sources for current rules.
Key terms
- Deposit: an account balance the bank owes its customer.
- Credit: money provided with an obligation to repay.
- Liquidity: the ability to meet payments when due.
- Capital: funding that can absorb losses, distinct from customer deposits.
Continue learning and check the sources
Read about the Bank of Mauritius
Source: Bank of Mauritius — role and functions
Source: Bank of England — money creation in the modern economy
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Prepared 5 November 2026. Illustrative education, not a bank offer or personalised advice.