Net Interest Margin

What is NET INTEREST MARGIN? What does INTEREST MARGIN mean? NET INTEREST MARGIN meaning… The following proportions (ratios) or sizes are often used to determine how strong a bank or the entire banking sector is:

  • Net Profit / Total Assets (ROA-Return on Assets)
  • Net Profit / Equity (ROE-Return on Equity)
  • Net Interest Income / Interest Income Assets (NIM-Net Interest Margin)
  • Total Deposits / Total Assets
  • Total Loans / Total Assets
  • Equity / Risk Weighted Assets (CAR-Capital Adequacy Ratio)
  • Provisions / Loans in Average Follow-Up
  • Loans under Follow-up (net) / Total Loans (NPL-Non Performing Loans)
  • Fees and Commissions (net) / Total Revenues
  • Fees and Commissions (net) / Operating Expenses
  • Market Share (Deposits)
  • Market Share (Credits)

Net Interest Margin

The most frequently used ratio (Capital Adequacy Ratio) is CAR for assessing the banking sector and banks. The sector’s average capital adequacy ratio was 18.9 percent as of the end of 2010 and 16.5 percent. As of the end of 2011 We can say that these rates are quite above the legal limit of 8 percent. And the branch opening target limit of 12 percent.

Profitability criteria

The most commonly used performance criteria in the profitability analysis of the banking sector are asset profitability (ROA), equity profitability (ROE) and net interest margin (NIM) ratios.

Net Interest Margin

Asset profitability (ROA) is obtained by proportioning net profit to asset total. Although asset profitability has an important place in the bank’s profitability indicators. Its partners are more concerned with equity profitability (ROE). Equity profitability, which is obtained by the ratio of net profit to equity. Is a basic performance criterion since it shows the profitability of the capital put into the bank.

Another performance criterion used to measure the profitability of banks is NIM (net interest margin) obtained by proportioning. Net interest income (interest income, interest expenses) to assets with average interest yield. Net interest represents the interest income earned for a unit asset.

Since the high net interest margin to be calculated will affect the profitability of the bank positively. It also shows the success of the bank management in applying the principles of asset and liability management.

Therefore, the interest margin can be considered as a measure of both profitability and management effectiveness.

Studies have determined that “liquidity risk” has an impact on NIM and ROA, and “currency risk” has an impact on NIM and ROE. It showed that ‘operational risk’ is not effective on profitability rates.

Term Structure of Interest Rates

Term Structure of Interest Rates: The interest rate of securities differs according to the characteristics of securities. The risk that securities carry, the liquidity feature, tax privileges and finally maturities differ from each other. When it comes to the structure of interest rates, it is understood how the differences in these properties of securities reflect on the interest rates.

Term Structure of Interest Rates

The interest rate of securities differs according to the characteristics of securities. The risk that securities carry, the liquidity feature, tax privileges and finally maturities differ from each other. When it comes to the structure of interest rates, it is understood how the differences in these properties of securities reflect on the interest rates. For example, we call the difference between the interest rates of securities at various maturities. With the same level of risk as the maturity structure of the interest rates.

Risk Structure of Interest Rates

The risk structure of interest rates aims to explain the differences between the interest rates of securities with the same maturity. Therefore, the risk structure of interest rates, the risk of non-repayment of securities. With the same maturity explains how differences in liquidity and tax privileges are reflected in the interest rate. We will consider how the differences in these factors will be reflected in the interest rate below.

Risk of Non-Reimbursement

The risk of non-reimbursement of a security that represents debt (such as bonds and bills) is the possibility that the economic unit issuing this securities. Will not fulfill its responsibilities (interest payment and principal repayment) on time. The unit, which issues this possibility, issuing securities should offer a higher interest rate to those who purchase it, in order to compensate for the risk they assume.

term structure of interest rates

In order to determine the risk of non-reimbursement for a security, a non-reimbursable security is needed. As we mentioned before, government bonds can fulfill this function. Since the state has the necessary power to raise taxes and impose new taxes, and beyond that. It holds the monopoly of printing money in the country, so the possibility of the state not to repay its debts is considered zero.

Therefore, debt securities issued by the public sector are called risk-free securities. When interpreting the concept of “risk-free” here, keep in mind that what is meant is independence from the risk of non-repayment.

Public Sector

Because the bonds and bills issued by the public sector always carry the interest rate risk. If we compare the interest rate of securities that do not bear the risk of non-reimbursement and the interest rates. Securities with such probability, it becomes possible to determine the risk of non-reimbursement. Accordingly, for example, the difference between government bond interest rates with the same maturity of a bond issued. By a private company is a measure of the risk of non-reimbursement. The difference between the interest rate of a security, which is independent of non-reimbursement risk. The interest rate of a security with the same maturity, is the risk premium.

Accordingly, the risk premium shows how much additional interest has been earned to purchase a risky bond. As you can remember from our previous explanations, the risk has an effect that increases the interest rate. Securities that carry the risk of non-repayment always carry a positive risk premium. The higher the risk, the higher the risk premium.

We can use Figure 5.1 to see how the risk of non-repayment is reflected in the risk premium and interest rate. In the figure, the private sector bond market with the same maturity and the government bond market are discussed separately.

In order to see more clearly how the risk premium is reflected in the interest rate. Let’s make a simplifying assumption and initially assume that private sector bonds do not bear the risk of non-reimbursement. In this case, the interest rates of these bonds with the same risks and maturities will be the same. As a matter of fact, according to the figure, the balance interest rates formed in both markets according to the starting balance points are at the same level.

Interest Rate Risk

Interest rate risk is a form of market risk. Interest rates risk states that the relational or proportional value of an interest rate security. (for example, bond or loan) Will decrease due to an increase in the interest rate. In general, if interest rates rise, the price or value of a bond with fixed interest rates will decrease and vice versa.

Interest Rate Risk

Interest rate risk measurement is generally done with the help of the bond and is the earliest. Of the countless methods applied against interest rate. One of the basic techniques applied for the management of interest risk is asset liability management. This technique includes a comprehensive collection of methods used in a common organizational risk management infrastructure.

Interest Rate Risk

Calculation of Interest

Analysis of interests rate is often done on the basis of imitating changes in a range of return curves. (risk-free arbitrage) Ensure that yield curve changes are the same as current market return curves.

There are many standard calculation methods, consisting of different types of assets and liabilities. That are used to measure the effect of variable interest rates on a portfolio.

The most basic methods are:

1) Calculation of the net market value of liabilities and assets. In some cases, it is called the market value of portfolio equity.

2) Conducting a stress test of this market value with the help of a certain shift in the yield curve. Time is somehow a form of stress test, in which case the shift of the yield curve is parallel.

3) Calculation of the value at risk in the portfolio.

4) Calculation of financial income and expenses or cash flows accumulated in more than one period in N in a settled collection of future return curves.

5) The fifth step involves the implementation of step 4 with the measurement of return curve. Shifts that are stochastic in nature and the measurement of cash flow probability distributions and accumulated financial gains during the passage of time.

6) Measuring the difference between interest sensitivity of assets and liabilities by categorizing the maturity and interest rates of assets and liabilities according to the timing, whichever occurs first.

Interest Rate and Banks

There are four types of interest rate risks that banks face:

1- Return curve risk: It is expressed in case of deviations or differences between long-term and short-term interest rates.

2- Basic risk: This risk arises when the expenditures for returns and debts from assets are determined in comparison with the proposed rate between banks.

3- Option risk: This risk is exhibited with the help of the options included in a number of assets and liabilities.

4- Repetition risk: This risk is demonstrated by liabilities and assets where repricing is done at various rates and times.

Hedging from interest rates risk can be done through fixed rate interests rate swaps or financial instruments. Interest rates risk can be minimized through short-term bond purchases or participation in a fixed variable interests rate swap.

Times Interest Earned Ratio

Times Interest Earned Ratio: What is interest? What are the interest rates? What are the interest rates?

Times Interest Earned Ratio

What is interest? How is interest calculated? What are the interest rates of banks? Here are some things to know about interest …

What is interest? What are the interest rates?

Interest is the rate of income earned as a result of the sale of the bond. That is the subject of debt to the lender of the borrower or the depositor financial institution. Interest is the additional income item excluding the principal and paid to creditors or third parties. Interest is outside the scope of the dividend. Which is the right of the shareholders to get a share of the profit earned during the period in a company.

times interest earned ratio

Ordinary citizens often pay interest to banks. The payment of the customer to the bank is more than the main money received from the bank. In such a case, the bank receives income with the interest item on the money it sells to the customer. Likewise, the customer receives interest from the money he deposits or lends to the bank.

Interest does not have the same meaning as profit. Interest is taken by the person who lends the money. Profit, on the other hand, means money that a property, investment or enterprise earns outside its cost.

How is the interest rate calculated?

The interest rate is equal to the interest amount to be paid or received over the payment period of the loan that is borrowed or lent.

What is compound interest? Times Interest Earned Ratio

Compound interest is the type of interest earned on both the principal and the principal. By adding the interest earned in each period to the principal.

What are the interest rates?

Gathered on September 13th 2021 the Central Bank of the Republic of Turkey Monetary Policy Committee. Which decided policy rate one-week repo auction rate to be raised to 24 percent of the 17,75’t percent. Thus, 1 week lending interest rate was determined as 24 percent. The next meeting of the Monetary Policy Committee will be held on 25 October 2021.

Best Savings Interest Rates

Best Savings Interest Rates: For those who want to invest, there are varied USD investment methods. These methods include opening a deposit account and depositing interest here to earn interest income.

The interest rates given by banks to these accounts are different from each other. You can get interest by depositing your money as a deposit or you can get interest by depositing it in gold. You can get interest by not only depositing in USD but also in EUR. We searched for the banks that paid the most deposits in 2020 for you.

Best Savings Interest Rates

One of the suitable investment tools for those who want to invest is to open a deposit account from banks and deposit their money here. Banks give interest to their customers who have time deposits because they use the existing amounts and they use certain amounts of interest. You can also set the time for your money to remain on the account and the regular payment period. It is opened by selecting a specific maturity on the name of deposit accounts. Your money constantly gains value within this determined maturity period. It is possible to withdraw money at the end of maturity. If you withdraw your money before the agreed term, you will not be able to get interest.

Best Savings Interest Rates

Technology is developing in all areas. You no longer have to go to bank branches to open a term account. Or there is no procedure that banks are looking for. Using internet banking or mobile banking, you can easily open a deposit account and set terms by yourself. Interest rates offered by banks to their customers vary. Another point to be mentioned here is the deductions made to the accounts. The deductions called withholding vary according to the maturities.

What is a Term Account? How to Open?

  • Withholding deduction rate to be made from accounts with a maturity of more than 1 year, 10%,
  • The withholding deduction rate to be made from the accounts up to 1 year is 12%,
  • The withholding deduction rate to be made from accounts up to 6 months will be 15%.

In terms of how to calculate term deposits, the calculation tools available on the banks’ websites are calculated for deposit returns. However, in our content, we will make sample calculations according to the interest rates of banks.

We are preparing the list of banks with the highest interest for you, and for those who want to evaluate their money at the end of this year, we are helping people who want to compare the interest rates of banks and evaluate their money. As you know, people find the bank with the highest interest rates in high amounts due to high inflation and evaluate their money there. By researching in detail for you, you can find the bank with the highest interest rate annually by calculating the profit and loss rates and you can immediately deposit your money.

Highest Interest Banks 2020

First of all, if you want to use your money in time deposit USD account. You can compare all banks and find out which bank gives higher interest from this page. Before moving on to the comparison, it is also worth mentioning that. Banks can change deposit interest rates instantly according to current market conditions. Some banks give the interest rate they show only with a “welcome interest” until a certain day and then return to normal. Therefore, you should first examine the interest rates and deposit account details of the banks and decide on which bank to deposit your money accordingly. Below you can see the interest rates calculation for all banks as well as examples of calculating deposit interest rates.