Calculation
NIM is calculated as a percentage of interest bearing assets. For example, a bank's average loans to customers was $100.00 in a year while it earned interest income of $6.00 and paid interest of $3.00. The NIM then is computed as ($6.00 – $3.00) / $100.00 = 3%. Net interest income equals the interest earned minus the interest paid out to customers.
In particular, for a bank or a financial institution if the non-performing assets are high, their NIM will go down as the interest earning assets are that much reduced by non-performing assets.
Read more about this topic: Net Interest Margin
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