CS Professional · Banking and Insurance - Laws and Practice · Analysis of Financial Statements of Banks
Sagar Bank's Net Interest Income for the year is Rs 90 crore, and its average total assets are Rs 1,500 crore. An analyst computing Net Interest Margin on total assets and also checking earnings quality should state the NIM as:
The NIM is 6.0%, calculated as net interest income of 90 crore divided by average total assets of 1,500 crore. It measures how much the bank earns from its lending and investing activity relative to its asset base, which reflects earnings quality.
- A6.0%Correct
- B60.0%
- C1.5%
- D9.0%
Explanation
NIM = Net interest income / average assets = 90/1,500 = 6.0%. The value 60% results from a decimal error. The 1.5% figure comes from inverting the ratio incorrectly, and 9.0% is a figure with no basis in the data.
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