Net Interest Income

Net interest income (NII) is the difference between interest income and interest expense. It is a key measure of a bank's profitability and is often used to compare banks with each other.

Interest income is the income a bank earns from lending money to its customers. Interest expense is the cost of borrowing money from other banks or investors.

Net interest income is calculated by subtracting interest expense from interest income. For example, if a bank earns $100 in interest income and pays $50 in interest expense, its net interest income would be $50.

Net interest income is an important measure of a bank's profitability because it shows how much money the bank is making from its lending activities. Banks with high net interest income are generally more profitable than banks with low net interest income.

Net interest income can be affected by a number of factors, including the interest rate environment, the bank's lending and deposit mix, and the bank's credit quality.

The interest rate environment is a major factor that affects net interest income. When interest rates are high, banks can earn more money on their loans. However, when interest rates are low, banks can earn less money on their loans.

The bank's lending and deposit mix is another factor that affects net interest income. Banks that lend more money than they deposit will have higher net interest income. Banks that deposit more money than they lend will have lower net interest income.

The bank's credit quality is also a factor that affects net interest income. Banks that have a high level of bad loans will have lower net interest income. Banks that have a low level of bad loans will have higher net interest income.

Net interest income is an important measure of a bank's profitability. However, it is important to note that net interest income is not the only measure of a bank's profitability. Other important measures of profitability include return on equity (ROE) and return on assets (ROA).