Calculation
NIM is calculated as a percentage of net interest income to average interest-earning assets during a specified period. For example, a bank's average interest-earning assets (which generally includes, loans and investment securities) was $100.00 in a year while it earned interest income of $6.00 and paid interest expense of $3.00. The NIM then is computed as ($6.00 – $3.00) / $100.00 = 3%. Net interest income equals the interest earned on interest-earning assets (such as interest earned on loans and investment securities) minus the interest paid on interest-bearing liabilities (such as interest paid to customers on their deposits). In particular, for a bank or a financial institution, if the bank or financial institution has a significant amount of non-performing assets (such as loans where full repayment is in doubt), its NIM will generally decrease because interest earned on non-performing assets is treated, for accounting purposes, as repayment of principal and not payment of interest due to the uncertainty that the loan will be fully repaid.See also
* Net interest incomeReferences
Successful Bank Asset/Liability Management: A Guide to the Future Beyond Gap, John W. Bitner, Robert A. Goddard, 1992, p. 185. Interest Banking Financial ratios