Net Interest Margin (NIM)

Banks earn interest on loans and investments and pay interest on deposits and borrowing. The difference is net interest income. NIM expresses that difference as a percentage of interest-earning assets, showing how profitably the bank uses them.

For example, if a bank earns 60 million in interest, pays 25 million in interest and has 1,000 million of average interest-earning assets, its net interest income is 35 million and its NIM is 3.5%.

NIM depends on interest rates, competition, the mix of loans and deposits and how quickly rates on loans and deposits adjust. When interest rates rise, banks often raise loan rates faster than deposit rates, widening NIM. When rates fall or competition for deposits increases, NIM can narrow.

NIM is one of the most closely watched measures for banks, especially traditional lenders whose profits come mainly from interest. Comparing NIM across banks helps show which are more profitable lenders, although higher margins can also reflect riskier loans.