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Net Interest Margin Calculator

Written by:
PK

On this page is a net interest margin calculator for banks (and bank-like entities which earn a credit spread). Enter the amount of interest or investment income, interest or investment expenses, and the current and last period earning assets to estimate the net interest margin.

Net Interest Margin Calculator

What is the net interest margin?

For a bank, the net interest margin is a comparison between what a bank earns between interest it pays to its lenders (deposits and similar) and the amount it earns on investments elsewhere. By comparing net interest margin across banks, its one way to rank a bank's performance with the current interest rate conditions. Removing interest expense from the numerator leaves you with the gross yield on earning assets, which is the weighted average yield on earning assets.

A positive net interest margin shows that a bank is earning more money in interest than its cost of funding its investments.

Net interest margin isn't the only way a bank makes money, of course. Non-interest income can be significant, for example fees, origination costs, membership costs, and other charges may make up a significant amount of a bank's revenue.

Bank Net Interest Margin Formula

The net interest margin formula is:

net\ interest\ margin=\frac{interest\ income-interest\ expense}{average\ earning\ assets}

Where:

  • Interest Income – Interest and investment income earned by the bank.
  • Income Expense – Costs to earn the interest and investment income.
  • Earning Assets – The average of the current and previous period's earning assets. (Make sure you match the period with the income and expenses)

Other Banking Ratio and Valuation Calculators

These other tools help you value banks:

      

PK

PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK is in his mid-30s and works and lives in the Bay Area with his wife, two kids, and dog.

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