Net interest margin

Net interest margin (NIM) is the key profitability metric for financial institutions — banks and credit institutions — measuring the spread between interest income earned on assets (loans, bonds) and interest paid on liabilities (deposits, borrowings), expressed as a percentage of average earning assets. It reflects the institution's ability to transform short-term funding into higher-yielding longer-term loans. In financial institution valuation, NIM is the primary driver of operating revenue and structural profitability — its sensitivity to interest rate scenarios is a critical stress-test input.

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Example: a Swiss cantonal bank presents a NIM of 1.45% on CHF 2.5 billion of earning assets — generating CHF 36.25 million of net interest income. In the post-2015 low-rate environment, NIM compressed from 1.80% to 1.45% (-35 bps). Due diligence models NIM sensitivity across three rate scenarios: flat rates, +100 bps and -50 bps — quantifying the earnings impact on the institution's value.

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Hectelion models net interest margin sensitivity in financial institution valuations, capturing the full interest rate risk embedded in banking book assets and liabilities.