Net interest margin

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Net Interest Margin (NIM) is a measurement of the difference between the interest of the income generated by banks or other financial institutions and the amount of interest paid out to their lenders(for example, deposits). It is considered similar to the gross margin of non-financial companies.

It is expressed as a percentage of what the financial institutions are earning (it's interest often from borrowing from other financial institutions like the Federal Reserve) minus the interest that it pays on borrowed funds to its investors.

So in that vein, net interest margin is similar in concept to the net interest spread; where the net interest spread expresses the nominal average difference between the borrowing and the lending rates, without compensating that they earning assets and the borrowed funds may be different instruments.

The net interest spread is generally higher than the net interest margin because banks may need to keep a certain amount of assets in non-interest bearing assets (such as cash balances held at branches for customers or liquid reserves as determined by banking regulators).

[edit] Calculation

Interest yield is calculated as a percentage of interest bearing assets. For example, a bank's average loans rate to customers is $100.00 while it earns interest income of $6.00. The interest yield then is computed as 6/100 or 6% or the Net interest income Equals the Interest earned Minus the Interest paid out to customers.