A bank's interest income less its interest expense, as a percentage of average earning assets.
Net interest margin, or NIM, measures how much a bank or lender earns on its loans and securities after paying for its deposits and borrowings, relative to the assets that earn interest. It is the main profitability ratio for a lending business, and it moves with interest rates, deposit costs and the mix of loans.
Net interest margin = (interest income − interest expense) ÷ average earning assets, annualized. Average earning assets are the average over the period of loans, securities and interest-bearing deposits at other banks, not total assets.
A bank with interest income of $52,000,000, interest expense of $18,000,000 and average earning assets of $1,000,000,000 for the year has net interest income of $34,000,000 and a net interest margin of 3.4%.
Dividing by period-end assets instead of the average, which distorts it when the balance sheet is growing. Comparing banks without noting tax-equivalent adjustments on tax-exempt securities. A rising NIM can come from deposits leaving for higher rates elsewhere. The full guide is net interest margin.