Context:
The banking sector reported a record quarterly net profit for the September quarter amid improving stability in net interest margins (NIMs) and sustained double-digit growth in pre-provisioning operating profit (PPOP).
Net interest margin (NIM)
Net interest margin (NIM) is a financial indicator that measures the profitability of a bank or other financial institution. It is calculated by dividing the net interest income (interest income minus interest expense) by the total earning assets.
NIM is a main indicator of a financial entity’s health and efficiency. It can help investors determine whether to invest in a financial services firm, and can provide insight into a firm’s cost structure:
- Positive NIM:
- A positive NIM indicates that the entity is operating profitably.
- Negative NIM:
- A negative NIM indicates that the entity is inefficient and may need to take corrective action.
Pre-Provision Operating Profit (PPOP)
- Financial metric representing income generated in a specific time period before accounting for future bad debts.
- Key metric for banks providing insight into operational efficiency.
- Calculated by subtracting expected loan defaults and uncollectible debts from total income.
- Estimates remaining operating profit after loan defaults.
