Definition of Net Interest Income
Net interest income is the differentiation among the revenue that is generated from a lender’s resources and the expenses associated with paying out its obligations.
Brief Explanation of Net Interest Income
A typical lender’s resources consist of all forms of personal and commercial financial loans, mortgages, and Securities. The obligations are the customer deposits. The excess revenue that is generated from the interest earned on resources over the interest paid out on deposits is the net interest income.
It is a number of banks is more responsive to changes in interest levels than others. This can vary according to several factors, such as the type of obligations and resources that are held as well as if those obligations and resources have fixed prices or variable prices. Banks with variable rate obligations and resources will be more sensitive to changes in interest levels than those with fixed interest rate obligations and resources. Banks with obligations that reprice more often or quicker than their resources will be more negatively affected by interest rate changes. The type of resources earning interest for the lender can vary greatly from mortgages to automotive financial loans, financial loans, and commercial property financial loans. This will ultimately affect the interest rate a financial institution earns on its resources and the resulting net interest income after subtracting interest paid to depositors.