Banking
Net interest margin (NIM)
What a bank earns on its loans and investments after paying for its funding, as a share of those assets.
Last reviewedWhat does Net interest margin (NIM) mean?
Net interest margin is net interest income (interest earned on loans and securities minus interest paid on deposits and borrowing) divided by average interest-earning assets. It is the core profit engine of most banks. Example: a bank earns 7 on 100 of loans and pays 3 to depositors, so net interest income is 4 and NIM is 4 percent. NIM usually widens when interest rates rise, if the bank passes only part of the rise to depositors (see deposit beta), and narrows when rates fall or when competition for deposits is strong.
Where does it come up in case interview prep?
Related terms
- Deposit betaThe share of a change in policy interest rates that a bank passes on to depositors.
- CASA ratioThe share of deposits held in low-cost current and savings accounts.
- Cost-to-income ratioOperating costs as a share of operating income. Lower means a more efficient bank.
- Return on equity (ROE)Net income as a share of shareholders' equity.
- MarginProfit on a sale, as an amount per unit or as a percent of price.
- Cost of riskLoan loss charges as a share of loans, usually quoted in basis points.
- Non-performing loan (NPL) ratioThe share of a bank's loans that borrowers have stopped paying.
- CET1 capital ratio (and risk-weighted assets)A bank's highest-quality capital as a share of its risk-weighted assets.