what affects net interest margin 
multiple factors may affect a financial institution s net interest margin chief among them supply and demand if there s a large demand for savings accounts compared to loans the net interest margin decreases as the bank is required to pay out more interest than it receives conversely if there s a higher demand for loans versus savings accounts where more consumers are borrowing than saving a bank s net interest margin increases banks and other financial institutions may also use maturity transformation to profit from the difference in interest rates between borrowing and lending funds monetary policy and fiscal regulation can impact a bank s net interest margin as the direction of interest rates dictate whether consumers borrow or save monetary policies set by central banks also heavily influence a bank s net interest margins because these edicts play a pivotal role in governing the demand for savings and credit when interest rates are low consumers are more likely to borrow money and less likely to save it over time this generally results in higher net interest margins contrarily if interest rates rise loans become costlier thus making savings a more attractive option which consequently decreases net interest margins net interest margin and retail bankingmost retail banks offer interest on customer deposits which generally hovers around 1 annually if such a bank marshaled together the deposits of five customers and used those proceeds to issue a loan to a small business with an annual interest rate of 5 the 4 margin between these two amounts is considered the net interest spread looking one step further the net interest margin calculates that ratio over the bank s entire asset base let s assume a bank has earning assets of 1 2 million 1 million in deposits with a 1 annual interest to depositors and loans out 900 000 at an interest of 5 this means its investment returns total 45 000 and its interest expenses are 10 000 using the aforementioned formula the bank s net interest margin is 2 92 with its nim squarely in positive territory investors may wish to strongly consider investing in this firm historical net interest marginsthe federal financial institutions examination council ffiec releases an average net interest margin figure for all u s banks on a quarterly basis historically this figure has trended downward while averaging about 3 8 since first being recorded in 1984 recessionary periods coincide with dips in average net interest margins while periods of economic expansion have witnessed sharp initial increases in the figure followed by gradual declines 2the overall movement of the average net interest margin has tracked the movement of the federal funds rate over time case in point following the financial crisis of 2008 u s banks operated under decreasing net interest margins due to a falling rate that reached near zero levels from 2008 to 2016 during this recession the average net interest margin for banks in the u s shed nearly a quarter of its value before finally picking up again in 2015 2