Question

The financial performance of both Commercial Banks and Savings Banks is measured using the Net Interest...

The financial performance of both Commercial Banks and Savings Banks is measured using the Net Interest Margin (NIM).

a, Explain what the Net Interest Margin is measuring and evaluating.

b, Cite an example of why the Net Interest Margin could turn negative.

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Answer #1

A)Net interest margin is a difference between interest income earned by banks  and amount of interest paid to lenders.It evaluates the amount of money that a bank is earning in interest on loans compared to the amount it is paying in interest on deposits.

B) If banks is required to pay more interest than it receives .If there is a large demand for savings accounts compared to loans , net interest margin turn negative.Banks were unable to make an right decision as interest expenses were higher than amount of returns.

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