Income & Expense
Net Interest Income
Also known as NII
Net interest income (NII) is the difference between the interest a bank earns on loans and securities and the interest it pays on deposits and borrowings. It is the core profit engine of traditional banking and the numerator behind net interest margin.
How is Net Interest Income calculated?
Total interest income comes from loans, leases, and securities; total interest expense is paid on deposits and borrowings. Both are reported on Schedule RI. Dividing NII by average earning assets gives the net interest margin (NIM).
Why does Net Interest Income matter?
For most banks, NII is the largest single revenue line, far bigger than fee income. Its sensitivity to interest-rate moves (asset-liability mismatch) is the central question of bank interest-rate risk management.
How do you interpret Net Interest Income?
Read NII together with NIM and the rate environment. Rising rates can lift NII for asset-sensitive banks and squeeze it for liability-sensitive ones. A bank growing NII only by growing the balance sheet (while NIM compresses) is buying revenue with risk.
What do Net Interest Income levels indicate?
| Range | Label | Interpretation |
|---|---|---|
| Growing with stable NIM | Strong | Spread income expanding without margin compression. |
| Stable | Adequate | NII holding steady through the rate cycle. |
| Margin compression | Watch | Funding costs rising faster than asset yields. |
| Declining | Concern | Falling spread income pressures the entire earnings stream. |
Worked example
Frequently asked
What is the difference between net interest income and net interest margin?
NII is a dollar amount (interest earned minus interest paid). NIM is that amount expressed as a percentage of average earning assets, which makes it comparable across banks of different sizes.
Does net interest income include fee income?
No. Fees, service charges, trading, and servicing revenue are noninterest income, reported separately. NII is strictly the spread between interest earned and interest paid.
Sources
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