Definition
Net Interest Income (NII)
Net Interest Income is the difference between the interest a bank earns on its assets and the interest it pays on its liabilities, the core of its operating revenue.
NII is interest income from advances and investments minus interest paid on deposits and borrowings. It is the rupee-value engine of bank earnings, while NIM expresses the same relationship as a percentage of earning assets.
NII growth depends on both balance-sheet expansion (more advances) and margins (the spread). Indian analysts watch quarterly NII closely because it drives pre-provision operating profit, from which credit cost is deducted to reach the bottom line.
Related terms
- Net Interest Margin (NIM)Net Interest Margin is the difference between the interest a bank earns on advances and investments and what it pays on deposits and borrowings, expressed as a percentage of average interest-earning assets.
- Spread (Banking)In banking, the spread is the difference between the yield a bank earns on its assets and the rate it pays on its liabilities, typically the gap between yield on advances and cost of funds.
- Advances (Banking)Advances are the loans a bank extends to borrowers, forming the main interest-earning asset on its balance sheet.
- Pre-Provision Operating Profit (PPOP)Pre-Provision Operating Profit is a bank's operating profit before deducting provisions for bad loans and taxes, showing core earning power.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.