How to Calculate a No Interest Margin

by Kiran Bharthapudi ; Updated September 26, 2017
Values for non-interest income, non-interest expense and total earning assets are required to calculate no interest margin

No interest margin is a financial measurement that helps asses the usefulness of revenue from non-interest items such as fees and service charges. This is a measurement of significance, particularly for banks and credit card companies. Also referred as non-interest margin, it is the difference between non-interest income and non-interest expenses divided by total earning assets.

Calculate non-interest income. Any income a company earns from activities other than its core business or from investments is termed as non-interest income. This type of income is also referred to as "fee income," since fees tend to make up for the majority of non-interest income. If the amount of non-interest income isn't readily available, you can calculate it by adding together such sources of non-interest incomeas fiduciary duty or trust income, trading revenue, service charges, fee income and other miscellaneous income not made from core business or investments.

Calculate non-interest expense. Acompany's fixed operating and overhead costs are classified as non-interest expense. Employee salaries and benefits tend to make up the majority of non-interest expense. Other non-interest expenses include unemployment tax, insurance, operation and maintenance of facilities, costs to maintain equipment, furniture, and vehicles. The total amount for the non-interest expense can be obtained by adding together all items classified or deemed as fixed operating costs of a business.

Calculate total earning assets. Earning assets are assets that generate revenue without any work needing to be done. You can calculate the total earning assets by adding together interests on leases and loans, dividends from investment securities bonds, stocks, certificates of deposit, or any other items that earn interest or dividends.

Calculate no interest margin. Once you have values for the three required variables in the equation you can get the no interest margin by calculating the difference between non-interest income and non-interest expenses and dividing it by total earning assets.

In equation form: no-interest margin= (non-interest income - non-interest expense)/ (total earning assets).

For instance, if a financial firm earns $500,000 in a month from fees and service charges, registers fixed operating costs of $400,000 and total earnings on assets are $100,000.
the rate of no interest margin will be 1. Financial firms either want non-interest income to write off non-interest expense or record a positive no interest margin.

About the Author

Kiran Bharthapudi has more than seven years of experience in print, broadcast and new media journalism. He has contributed to several major news agencies, including United Nations radio, BBC online and "Consumer Reports" magazine. His articles specialize in the areas of business, technology and new media. He has a Ph.D. in mass communications.

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