Net interest Margin, Leverage and Capital Adequacy Ratio

Net interest Margin is one of the major parameters used in assessing the performance of a finance company

NIM = Net Interest Income / Asset(i)

= (Interest Income – Interest Expense)/Asset

= (Lending Rate X Asset – Borrowing Rate X Debt)/Asset First Formula

= Lending Rate – (Borrowing Rate X (Debt/Asset)) Second Formula

=Lending Rate -(Borrowing Rate X(Debt/Equity X Equity/Asset)

=Lending Rate -(Borrowing Rate X Leverage X Capital Adequacy Ratio) Expanded Formula

(i)  Please note that Assets here are the loans made by the finance company and not other assets.