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FRM Part I · FRM Exam Part I · Banks

A bank has net interest income of USD 60 million on average interest-earning assets of USD 1,500 million and average total assets of USD 1,800 million. Its net interest margin (NIM) is closest to:

Net interest margin equals net interest income divided by average interest-earning assets: 60 divided by 1,500 equals 4.00%. Dividing by total assets instead would give 3.33%, but that includes non-earning assets and is the wrong base for the margin.

  1. A3.33%
  2. B4.00%Correct
  3. C3.00%
  4. D2.50%

Explanation

NIM = net interest income / average interest-earning assets = 60/1,500 = 4.00%. Using total assets gives 3.33%, which is the wrong base. 3.00% and 2.50% do not reconcile to any correct base.

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