Definition: What is the Net Interest Margin (NIM)?

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Net Interest Margin (NIM)

Net Interest Margin (NIM) is a profitability ratio that measures how well a company is making investment decisions by comparing the income, expenses, and debt of these investments. In other words, this ratio calculates how much money an investment firm or bank is making on its investing operations. This is similar to the gross margin of a regular company.

The NIM ratio measures the profit a company makes on its investing activities as a percentage of total investing assets. Banks and other financial institutions typically use this ratio to analyze their investment decisions and track the profitability of their lending operations. This way they can adjust their lending practices to maximize profitability.
Investment firms also use this margin to measure the success of a fund manager’s investment decision-making. A positive percentage indicates that the fund manager made good decisions and was able to a profit on his investments. A negative ratio, on the other hand, means the fund manager lost money on his investments because the interest expenses exceeded the investment earnings.