Net interest margin

Net interest margin

Net interest margin (NIM) is a measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders(for example, deposits), relative to the amount of their (interest-earning) assets. It is similar to the gross margin of non-financial companies.

It is usually expressed as a percentage of what the financial institution earns on loans in a time period and other assets minus the interest paid on borrowed funds divided by the average amount of the assets on which it earned income in that time period (the average earning assets).

Net interest margin is similar in concept to net interest spread, but the net interest spread is the nominal average difference between the borrowing and the lending rates, without compensating for the fact that the earning assets and the borrowed funds may be different instruments and differ in volume. The net interest margin can therefore be higher (or occasionally lower) than the net interest spread.

Calculation

NIM is calculated as a percentage of interest bearing assets. For example, a bank's average loans to customers was $100.00 in a year while it earned interest income of $6.00 and paid interest of $3.00. The NIM then is computed as ($6.00 – $3.00) / $100.00 = 3%. Net interest income equals the interest earned minus the interest paid out to customers.

See also

References

Successful Bank Asset/Liability Management: A Guide to the Future Beyond Gap, John W. Bitner, Robert A. Goddard, 1992, p. 185.


Wikimedia Foundation. 2010.

Игры ⚽ Нужна курсовая?

Look at other dictionaries:

  • net interest margin — The amount of interest income minus interest expense, usually expressed as a percentage. The net interest margin percentage is calculated by dividing interest income less interest expense by average earning assets. If interest income includes tax …   Financial and business terms

  • Net Interest Margin — A performance metric that examines how successful a firm s investment decisions are compared to its debt situations. A negative value denotes that the firm did not make an optimal decision, because interest expenses were greater than the amount… …   Investment dictionary

  • Net interest margin securities — (or NIMS) is a type of financial instrument related to a securitization.For example, New Century Financial Corporation the subprime mortgage lender that went into Chapter 11 bankruptcy in April 2007 sells the cash flows it receives from its… …   Wikipedia

  • net interest margin — /net ɪntrəst ˌmɑ:dʒɪn/ noun the difference between what a bank receives in interest on loans and what it pays out in interest on deposits …   Dictionary of banking and finance

  • Net Interest Margin Securities - NIMS — A type of security that allows holders to access excess cash flows resulting from securitized mortgage loan pools. Excess cash flows from the securitized mortgage loan pools are transferred to a trust account through a NIMS transaction. From this …   Investment dictionary

  • Net interest spread — refers to the difference in borrowing and lending rates of financial institutions (such as banks) in nominal terms. It is considered analogous to the gross margin of non financial companies. Net interest spread is expressed as interest yield on… …   Wikipedia

  • Net interest income — (NII) is the difference between revenues generated by interest bearing assets and the cost of servicing (interest burdened) liabilities. For banks, the assets typically include commercial and personal loans, mortgages, construction loans and… …   Wikipedia

  • Net Interest Income — All firms can divide the balance sheet into assets and liabilities. For banks the assets are commercial and personal loans, mortgages, construction loans and securities. The liabilities are deposits from customers. The net interest income (NII)… …   Wikipedia

  • Net Interest Rate Spread — The difference between the average yield a financial institution receives from loans and other interest accruing activities and the average rate it pays on deposits and borrowings. The net interest rate spread is a key determinant of a financial… …   Investment dictionary

  • margin — the difference between the selling price and the purchase price of an item usually expressed as a percentage of the selling price. Compare mark up. Glossary of Business Terms Financial safeguards to ensure that clearing members (usually companies …   Financial and business terms

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”