Banking and Finance Quiz

Net Interest Income (NII)

• Represents the difference between the income generated from a bank's interest-earning assets and the expenses associated with paying out interest on its liabilities.
• Serves as a key indicator of a bank's profitability from its core lending activities.

Investment in Subsidiaries

• Investments made by a bank in its subsidiaries are categorized under 'Investments' on the balance sheet.
• These investments help diversify the bank's portfolio and can provide additional revenue streams.

Calculation of Net Interest Income

• NII is calculated using the formula:
• NII = Interest Income - Interest Expense*
• This formula highlights the profitability of the bank's lending and investment activities minus the cost of funding.

Net Interest Margin (N.I.M.)

• N.I.M. measures the efficiency of a bank's investment and lending strategies relative to its net interest income.
• Calculated using the formula:
• N.I.M. = (Net Interest Income / Average Earning Assets) x 100*
• This ratio provides insights into the bank's ability to manage its assets effectively.

Economic Equity Ratio

• Used to assess the sustainability and financial stability of a bank.
• Calculated using the formula:
• Economic Equity Ratio = (Total Equity / Total Assets) x 100*
• A higher ratio indicates better solvency, showing that a larger proportion of assets is funded by equity rather than debt.