How is NIM different from Spread?

By Research Desk
about 3 years ago

Net Interest Margin (NIM) is the net interest income earned on average interest earning assets.

 

NIM = (Interest Income – Interest Expense) / Interest earning assets

 

Spread, on the other hand, is the difference between yield and cost of borrowing, where yield is the interest income earned on interest earning assets and cost of borrowing is interest expense charged on interest bearing liabilities.

 

Spread = (Interest Income/ Interest earning assets) – (Interest Expense/ Interest bearing Liabilities) 

 

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

Interest expense = Rs. 80 crore

Interest earning assets = Rs. 2,250 crore

Interest bearing liabilities = Rs. 3,000 crore

 

NIM    = (150 – 80) / 2250 = 3.11%

Spread  = (150 / 2,250) – (80 / 3,000)  = 4%

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