Net interest margin
What is net interest margin?
The ratio of a company’s net interest income to the value of its invested assets. It’s used to measure the success of investment decisions.
Where have you heard about net interest margin?
The Net interest margin (NIM) is often used as a performance metric for financial institutions. Theoretically, the large the NIM, the more profitable the bank.
What you need to know about net interest margin.
The NIM measures the success of a financial institution’s investment decisions compared to its debt. It’s a percentage figure calculated by subtracting the interest paid on liabilities from the interest earned on assets (the net interest income) and dividing this figure by the average earning assets.
A higher ratio represents a more effective use of assets. If the NIM is negative, this means the bank is paying out more in interest on its liabilities than it’s generating from its investments.
Although a higher NIM is often seen as better, increasing the NIM by investing in risky assets may not be a sustainable long-term strategy.
Find out more about net interest margin.
Gross margin is a similar concept to net interest margin that’s more commonly used outside the financial industry. Read our guide to find out more.