Net interest margin refers to the ratio of net interest income of a bank to all interest-bearing assets of the bank. The calculation formula is: net interest margin = (all interest income of the bank-all interest expenses of the bank)/net interest margin of all interest-bearing assets refers to net interest margin in financial terms: it refers to the difference between the average rate of return of interest-bearing assets and the average cost rate of interest-bearing liabilities.

Usually, net interest margin refers to the difference between the source cost of bank funds and operating income, which measures the ability of banks to generate interest-bearing assets by using interest-bearing liabilities, thus obtaining net interest income.

The net interest margin reflects the result of the use of bank funds, that is, the ability of the bank's interest-bearing assets to earn net interest income. Generally speaking, the higher the net interest margin, the higher the efficiency of commercial banks in using interest-bearing assets.

Is the bank's net interest margin high or low?

Theoretically, for banks, the higher the net interest margin, the better, because under the same scale, the higher the net interest margin, the stronger the profitability. For example, for the same loan size10 billion yuan, banks with a net interest margin of 3% only have a net interest income of 3 billion yuan, while banks with a net interest margin of 5% have a net interest income of 5 billion yuan. If other cost factors remain unchanged, it is equivalent to an extra profit of 2 billion yuan.

But in fact, the higher the net interest margin, the better. The principle of economics tells us that the higher the income, the greater the risk. Generally speaking, the higher the interest rate, the greater the possibility of non-performing loans, and then the bank's profits will be reduced in turn through provision and write-off. Therefore, the average bank will not pursue the higher the net interest margin, but keep it within a reasonable and moderate range.

What is the impact of domestic interest rate hikes on bank spreads?

Generally speaking, for the entire banking industry, during the interest rate hike cycle, the bank's spread is increasing. One of the main reasons is that in this process, the benchmark interest rate of demand deposits is generally unchanged or the increase rate is very low, but in listed banks, the proportion of this indicator has reached about 50%, so the interest expenses generated as debt segments have slightly increased during the interest rate hike cycle, thus widening the interest margin. In addition, for banks with relatively high demand deposits, if they can keep their deposits at a relatively low level when raising interest rates, their debt-side advantages will be more obvious. Of course, there are many factors that affect bank spreads, such as money supply, the willingness of enterprises and residents to wait for loans, deposits, etc., so comprehensive evaluation is also needed, and it is not possible to make a pre-judgment based on only one factor.