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Financial education 28 Jan 2020

What does a bank's net interest income include?

The net interest income is the difference in euro between financial income and financial costs; that is, the difference between an asset’s profitability (the credit lines and loans that the institution has on its balance sheet, mainly) and the interest that the bank pays for the resources it needs to finance that asset (such as customer deposits and wholesale financing).

The net interest income is different from another indicator that we often find in the financial information provided by institutions: the customer spread. While the first is one of the lines of a bank’s typical income statement and will therefore be shown in euro (or in the currency used in the financial statements of the institution), the customer spread is calculated as the average asset yield minus the average liability cost.

Finally, the net interest income of the profit and loss account should not be confused with the net interest margin on average total assets (NIM). The latter is an indicator of the profitability (expressed as a percentage) of a financial institution’s assets.

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