Net interest margin.

In plain English

Net interest margin, or NIM, measures how much a bank makes from its main job of lending. You take the interest income it earns on loans and investments, subtract the interest it pays out to depositors and lenders, and divide by the assets that produced it. A wider margin means the bank is earning more on each dollar it lends relative to what it pays to fund those loans. NIM rises and falls with interest rates and competition, and it is one of the first numbers analysts check on a bank.

01Why it matters

Net interest margin is the clearest read on whether a bank's lending business is healthy, and it explains why banks care so much about the gap between deposit and loan rates.

02The math, step by step

A bank earns 5 percent on its loans and pays 1.5 percent on deposits, across 100 million dollars of assets. Its net interest margin is about 3.5 percent, or roughly 3.5 million dollars a year.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT