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.

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.