Context: Banks are likely to see a reduction in their net interest margins (NIM) in the second quarter of the current fiscal due to higher cost of deposits.
Important Terms
- Bank balance sheet tells us about the assets, liabilities, and bank capital for an individual bank. The balance sheet is identified as: (Assets = Liabilities + Capital)
- Assets are items that the bank owns. This includes loans, securities, and reserves.
- Liabilities are items that the bank owes to someone else, including deposits and bank borrowing from other institutions.
- Capital is sometimes referred to as “net worth”, “equity capital”, or “bank equity”. Bank capital are funds that are raised by either selling new equity in the bank, or that come from retained earnings (profits) the bank earns from its assets net of liabilities.
- Net Interest Margin (NIM): It is the difference between the interest earned and the interest paid by a bank.
