Bank Income Statements

What is a Net interest income?

Net interest income is the net amount of interest received, that is, the total interest earned during the year on both loans and on any bonds the bank may hold in its overall asset portfolio, as well as interest paid out on deposits and debt issuance.

Net interest income is also related to another performance metric in a bank called NIM (net interest margin) which looks at Net interest income divided by interest earning assets. 

What are the nominal and real interest rates?

Nominal interest rates can be commonly thought of as the rate of interest that is set by the central bank, e.g. base rate or policy rate.

Real interest rates which are a function of the nominal rate less the level of inflation and will give depositors an understanding of the increase or decrease of their purchasing power.

What are operating expenses?

Operating expenses are usually the most significant item on the cost side of a balance sheet. They can be split between employee expenses, general admin, and depreciation and amortisation. An example of depreciation and amortisation could be IT equipment and property and plant.

What are the factors affecting dividends?

• The investment opportunities in the market
• The size of the firm
• The growth rate of the firm
• What the shareholders expect
• The amount of distributable reserves
• Approval by the regulator

How vital is an income statement for a bank?

The income statement helps banks to:

• Track profits and losses
• Promote a healthy image of business practices to the public and their investors
• Paint a clear picture of how they are spending and making their money