Net Interest Income

Net interest income is usually the largest source of income for traditional banks. It reflects the core business of borrowing money from depositors and lenders at one rate and lending or investing it at a higher rate.

For example, a bank that earns 90 million a year in interest on mortgages, business loans and bonds, and pays 40 million in interest to depositors and other lenders, has net interest income of 50 million.

Net interest income rises when a bank lends more, when the gap between loan and deposit rates widens or when interest-earning assets grow faster than interest-bearing liabilities. It falls when lending shrinks, when the gap narrows or when the bank must pay more to attract deposits.

Banks also earn non-interest income, such as fees for accounts, cards, advice and trading. Analysts look at both. Net interest income is often divided by average interest-earning assets to calculate the net interest margin, which allows comparison between banks of different sizes.