Cathay Bank: Net Interest Margin

Net interest margin (NIM) is a bank's interest income minus its interest expense, annualized and divided by its average earning assets, expressed as a percentage. It measures the spread a bank earns on its lending and investing, the core of how a bank makes money.

A wide NIM comes from high-yielding loans, such as credit cards or construction lending, or from cheap deposits; find out which before calling it a strength. Large banks run lower margins than community banks because they hold more securities and cash and earn more from fees. NIM falls when deposit costs rise faster than asset yields, which happened across the industry in 2023. Compare NIM with peers of the same size and loan mix. Put simply, a bank earns interest on outstanding loans and other interest-earning assets and pays interest on customer deposits and borrowings; net interest income (NII) is the difference, and NIM states it as a share of the interest-earning assets that produced it.