Net Interest Income (NII) is a critical financial metric for banks and other lending institutions, representing the core profitability derived from their...
Net Interest Income (NII) is the difference between the total interest a bank earns from its interest-generating assets (e.g., loans, investments) and the total interest it pays on its interest-bearing liabilities (e.g., deposits, borrowings).
NII is a primary indicator of a bank's profitability and operational health, reflecting how effectively it manages its core lending and borrowing activities. A strong NII signifies a healthy spread between lending and funding costs.
Key factors include prevailing interest rates, the volume and mix of a bank's loan and deposit portfolios, funding costs, and competitive pressures within the financial market.
The impact of rising interest rates on NII depends on a bank's asset-liability structure. If interest income on assets reprices faster or more significantly than interest expense on liabilities, NII can increase, and vice versa.