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Net Interest Margin

Net interest margin (NIM) is a measure of a financial institution’s profitability, calculated as the difference between the interest income generated by its loans and investments and the interest paid on its deposits and borrowings, expressed as a percentage of its interest-earning assets. A higher net interest margin indicates that the institution is earning more on its assets relative to its liabilities. NIM is a key performance indicator for banks.

Example

A bank with $1 billion in interest-earning assets generates $40 million in net interest income, resulting in a net interest margin of 4%.

Key points

• A measure of a financial institution’s profitability, calculated as the difference between interest income and interest expenses.

• Expressed as a percentage of interest-earning assets.

• A higher NIM indicates greater profitability from lending activities.

Quick Answers to Curious Questions

NIM is the difference between interest income and interest expenses, expressed as a percentage of interest-earning assets.

It indicates how efficiently a bank earns interest on its assets compared to the cost of its liabilities, reflecting profitability.

Changes in interest rates, the composition of assets, and the spread between lending and borrowing rates impact NIM.

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