How is the net interest margin for a bank calculated?

The net interest margin for a bank is calculated by taking the interest revenue generated from its earning assets and subtracting the interest costs incurred during a specific period. This result is then divided by the average earning assets to assess the efficiency of the bank in utilizing its earning assets to generate interest income.

This margin effectively measures the spread between the interest income received on loans and other investments and the interest paid on deposits and borrowed funds. By expressing this spread as a percentage of average earning assets, the net interest margin provides insight into the profitability and operational efficiency of a bank.

In contrast to other options, calculating total liabilities divided by total assets does not relate to net interest income or the bank's profitability from interest activities. Similarly, interest costs divided by average earning assets does not account for the revenue earned, which is crucial for determining the margin. Lastly, average earning assets minus interest revenue does not yield a meaningful metric related to interest income and costs, as it omits the necessary elements to evaluate a bank's interests. Thus, the correct calculation method distinctly involves interest revenue minus interest costs divided by average earning assets.