How are Net Interest Margins (NIMs) calculated?

By Research Desk
about 3 years ago

Net Interest Margin is the ratio of net interest income to average interest-earning assets

 

NIM =   Net Interest Income / Avg Interest Earning Assets

 

Where, Net interest income is the difference between interest income and interest expense.

And Average Interest-earning assets are loans / advances given to borrowers by banks / NBFCs. Average of the beginning to end of the period is considered for prudent calculation.

 

E.g. If Interest income = Rs. 150 crore

Interest expense = Rs. 80 crore

Interest-earning assets (at beginning of year) = Rs. 2,000 crore

Interest-earning assets (at end of year) = Rs. 2,500 crore

 

NIM = ____(150 – 80)___

            (2000 + 2500) / 2

 

NIM =­­ __70___

            2,250

 

NIM = 3.11%

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