NIM Full Form
What is the Full Form of NIM?
Net Interest Margin OR NIM refers to the difference between the interest income earned ( from credit products like loans etc.) and the interest paid ( like on any savings account etc.) by any financial firm or bank.NIM is expressed as a percentage which is actually a profitability indicator of any financial institution or bank.NIM generally indicates the growth of any financial institution. The net Interest Margin is not the profit indicator of any financial institution because these financial institutions earn a significant amount from various types of fees and charges, which are not shown in the Net Interest Margin.
- What is the Full Form of NIM?
- Formula For Calculating Net Interest Margin
- Positive And Negative NIM
- Factors Affecting The NIM
Formula For Calculating Net Interest Margin
We can calculate Net Interest Margin using the formula given below:
NIM = IR - IEAEA
Where
IR = Investment Returns
IE = Interest Expenses
AEA = Average Earning Assets
Example:
Ria Industries is in trading business and takes a loan of INR 105,000 for an interest rate of 10% per annum and they earn INR 130,000 at the end of the year. Calculate their Net Interest Margin.
Solution:
Net Interest Received = INR ( 130,000 - 105,000) = INR 25,000.
Interest to be paid = 10% =0.1
Amount of interest paid = 105,000 × 0.1 = INR 10,500
Average Earning Assets = INR 105,000
Net Interest Margin (NIM) = (Net return on investment - Interest paid)/ Average earning Assets
Net Interest Margin (NIM) = (25000 - 10,500) / 105,000 = 0.138
So, NIM = 0.138 or 13.8%.
Positive And Negative NIM
A positive net interest margin tells that a firm is earning a profit and that the firm works profitably, while a negative NIM suggests that the firm has inefficient investments.
Factors Affecting The NIM
Net interest Margin can be influenced by multiple market factors, but there are two major factors that affect the NIM of any financial firm. The two major factors are Supply and Demand.
For example, If there is more demand for loans compared to the savings account, then the bank will earn more profit. That is, the net interest margin of the bank will increase, while if there is more demand for a savings account, then the net interest margin of the bank will decrease, which results in higher net interest margins over time.
Frequently Asked Questions (FAQs)
NIM or Net Interest Margin is calculated by dividing NII or Net Interest Income by the average income gained from the assets which produce interest.
Yes, the monetary policies of the bank impact the Net Interest Margin.
It shows that the firm operates profitably.
A high Net Interest Margin is good as it shows the related firm operates profitably, while a low NIM shows otherwise.
NIM on risk refers to the undertaking of financial risk and different techniques employed by the bank to combat these risks.