The Concept of Net Interest Margin

Banking may seem to be very easy for a simple depositor, but it is not to someone who is making a business out of it. For starters, there are so many terms that need to be learned and computations which formulas are a bit tricky for the simple minds.

But those are the reason why there are courses and even post baccalaureate degrees for banking and finance. These degrees are intended to teach people to learn about the best practices in banking and finance.

Among these is the highly important net interest margin where generally, the profit of the bank is drafted.

Net interest margin or just NIM is simply the difference between the income generated by the bank from loans and the amount they pay for deposits in relation to the interest-earning asset.

In all cases, the computation is in percentage. Simply put, a bank’s net interest margin is the gross margin of other business companies associated to financing.

For better understanding, here is a calculation of the net interest margin:

(Bank earnings from loans in percentage – Bank liabilities on borrowed funds like from depositors in percentage)/(average earning assets)


If the bank loans $100 to its clientele,
Let bank earnings from loans in percentage = $6
Bank liabilities= $3

NIM (net interest margin) computation is:

($6-$3)/$100 =$3 (NIM)


Importance of NIM

Computing for the net interest margin is very important because it is where the bank drafts its profits and thus its available fund. Also, it is what dictates the standing of the bank, ergo is important to its clientele.

If you are looking for the best bank to leave or invest your money at, this is one of the important factors you need to look into.

Surely, this is not easy information for you to find out and sometimes, is not always available for you. So what would you do? Here are some of the best ways you can learn the net interest margin of a bank:

Find out by checking the financial reports of the bank. Surely, not all banks publish reports especially about their financial standing in all for everyone to find out and become a threat for their security.

But they do that at least annually for regulatory purposes, and that agency is where you can get this information from. All you have to do is be a voracious reader about financial news and whatnot. Doing so will help you find the best bank for all your needs and investments.

But there are also banks who are very aggressive in terms of marketing, so you can rest assured that they will be shouting out whatever increase in profits as well as net interest margin they have. You just have to be a fan of these banks and stalk their sites for such information.

Some banks also have monthly, quarterly, or annual reports sent to their clienteles. They surely send this information to keep their members notified of whatever changes or good news they need to learn from their bank. Doing this increases the confidence of their members and thus can expect loyalty and better business.

Look it up on the regulating institution of banks in your state or country. The best shot for you to find important financial information on your bank is the bank itself, only that they are not as generous to non-members as they are with those that are under their depositors list.

But you can still get the information you need before choosing a bank that will provide you with your needs by going through the “bank” of all data—the regulating agency of your state or country’s banks.

Federal laws and government financial authorities require such reports and information, so they are the best choice you have for information like this.

Surf the net. Surely, an established bank has a website for clientele to check on to. These sites have all the necessary information and details you might need. All you have to do is go to the site and check out what new with the bank, what their offered benefits and features are as well.

In fact, you can find important financial information like their interest margin, loan information, and investment offerings. On top of this, these websites also offer other systems and services that you may find perfect for your lifestyle.

Aside from the net interest margin information you can get from online websites of your chosen bank/s, you can also find other services like online banking among so many others.

This service allows you to check news and use other services of the bank via the World Wide Web. That way you can do banking at anytime and almost anywhere there is connection to the net. Isn’t that the best news you can get ever?