In the United States, the average net interest margin (nim) for banks in the first quarter of 2017 3.10%. Although the rebound from a 30-year low of 2.95 in the first quarter of 2015, is less than ten years ago: net interest margin for U.S. banks in the first quarter of 2007 amounted to 3.33%. The recent peak of 3.84% was achieved in the first quarter of 2010. On the surface, this suggests that a typical net interest margin for U.S. banks in the 21st century seem to be stuck between 3% and 4%.
In particular, the average NIM figure for the five largest banks in the country remain significantly below the average of NIM indicator for the U.S. banking sector. The top five (U.S. bancorp, Citigroup, wells Fargo, Bank of America and Morgan) in an average of 2.59%. This gap is virtually unchanged from the 1st quarter of 2016. The gap is reduced, but in the first quarter of 2015, banks in total Bank assets between $50 million and $99 billion, the net interest margin between 3.5% and 4.1%. Banks at or above $100 billion in assets the net interest margin between 2.5 and 2.8%.
Explaining Net Interest Margin
In Finance, the net interest margin reflects the difference between interest paid and interest received, adjusted relative to the amount of interest-generating assets.
To illustrate, consider a simple case where the Bank issued credits equal to 100 million dollars. Of these loans, it amounted to $ 5.5 million of interest income. He also paid $2.5 million for the benefit of its depositors.
The calculation of the net interest margin of the Bank according to the following formula: net interest margin = ($5.5 million – $2.5 million) / $100 million = of 0.03, or 3%.
Net interest margin is not the same – and not entirely correlated with net interest income. Net interest income is the numerator in the equation for net interest margin, and the denominator (assets) can vary in proportions not included in the numerator.
The net interest margin should not be confused with efficiency, either. Most banks earn significant income from commissions and service charges, none of which affects the interest margin.
Typical and relative to the net interest margin
A number of factors can change a typical net interest margin for the banks. For example, the demand for and supply of loan funds helps to establish interest rates on the market. Monetary policy and banking regulation, the fed can change the demand for deposits and demand for loans.
If the demand for savings increases relative to the demand for loans, it is likely that net interest margin will decline. On the contrary, if the demand for loans is higher compared to the savings.
At the individual organizational level, the net interest margin can drastically range. In 2015, the net interest margin at the end of the sixth largest financial institution, Bank of new York Mellon Corporation, was only 0.92%. The seventh-largest financial capital, were net interest margin of 6%. This does not necessarily mean that capital more than six times more effective, the Bank of new York Mellon, as each company focuses on different financial instruments to generate income. However, this suggests that capital has more flexibility in changing rates.