Net Interest Margin (NIM)
Spread between interest earned on loans and interest paid on deposits.
Definition
Net interest margin measures the difference between the interest income earned by a bank on its interest-earning assets (loans, securities) and the interest paid on its interest-bearing liabilities (deposits, borrowings), expressed as a percentage of average earning assets. NIM is the primary driver of bank revenue.
Formula
NIM = (Interest Income - Interest Expense) / Average Earning Assets × 100
Why It Matters
NIM is the single most important profitability metric for traditional banks. A higher NIM means the bank earns more from each dollar of assets. NIM is heavily influenced by the interest rate environment—rising rates generally help banks with more floating-rate assets.