What is Net Interest Income
Net interest income is a financial term used to describe the difference between the interest income earned by a company or individual and their interest expenses, such as the interest paid on a mortgage or other debt.
This figure is considered an important indicator of a firm’s financial strength, as it represents how well a company can cover its interest payments with revenues it generates from investments.
Typically, net interest income is computed by taking the total amount of interest income that a financial institution earns from its loans and investments, and subtracting from this total the interest expense it pays to depositors.
Net interest income may also be described as “net interest margin,” which is simply the ratio of net interest income to total assets.
Net Interest Income for Banks
This number is an important measure of a bank’s financial performance because it shows how much money the bank earned from its core business of lending money. In other words, net interest income shows how profitable the bank is at making loans.
Net Interest Income Formula
Net interest income is the difference between a bank’s total interest receipts and its total interest payments, for a particular period of time.
The formula for net interest income:
Net Interest Income = Interest Receipts – Interest Payments