How is the "net interest margin" defined?

Net interest margin is defined as the difference between the interest income earned by a financial institution from its interest-earning assets, such as loans and investments, and the interest expense incurred on its interest-bearing liabilities, such as deposits or borrowed funds. This difference is often expressed relative to the total amount of interest-earning assets.

This measure is crucial for assessing a bank’s profitability and efficiency in using its assets to generate income. A higher net interest margin indicates that a bank is earning more from its interest-earning assets compared to what it pays out in interest on its liabilities, which is a sign of effective interest rate management and overall financial health.

Other options, while related to banking operations, do not accurately capture the definition of net interest margin. For example, total revenue from all banking operations incorporates not just interest income and expenses, but also fees and non-interest income, which are not part of the net interest margin calculation. Similarly, total interest income from loans and the expense incurred from borrowing funds focus on specific components rather than the relationship between interest income and interest expense relative to interest-earning assets.