World Library  
Flag as Inappropriate
Email this Article

Net interest spread

Article Id: WHEBN0011871466
Reproduction Date:

Title: Net interest spread  
Author: World Heritage Encyclopedia
Language: English
Subject: Net interest margin, Banking, Bank
Collection:
Publisher: World Heritage Encyclopedia
Publication
Date:
 

Net interest spread

Net interest spread refers to the difference in borrowing and lending rates of financial institutions (such as banks) in nominal terms. It is considered analogous to the gross margin of non-financial companies.

Net interest spread is expressed as interest yield on earning assets (any asset, such as a loan, that generates interest income) minus interest rates paid on borrowed funds.

Net interest spread is similar to net interest margin; net interest spread expresses the nominal average difference between borrowing and lending rates, without compensating for the fact that the amount of earning assets and borrowed funds may be different.

Example

For example, a bank has average loans to customers of $100, and earns gross interest income of $6. The interest yield is 6/100 = 6%. A bank takes deposits from customers and pays 1% to those customers. The bank lends its customers money at 6%. The bank's net interest spread is 5%.

References

Successful Bank Asset/Liability Management: A Guide to the Future Beyond Gap, John W. Bitner, Robert A. Goddard, 1992, p. 185.

Net Interest Spread Software

There are several popular commercial net interest spread software packages to help banks manage and grow their net interest spread effectively. Among these are:

  • Margin Maximizer Suite - this software was originally developed by US Banking Alliance which was later purchased by ProfitStars - a Jack Henry Company. This software is coupled with an onsite consulting service. The software is installed onsite and is a Microsoft .Net based application that must be installed on each lender's computer.
  • PrecisionLender (formerly MarginPro) - an entirely web-based solution, launched in October 2009. It was developed by the original team from US Banking Alliance. It is Microsoft Silverlight based and it is software delivered as a service.
  • Austin Associates LLC - another web based commercial loan pricing solution. Unlike PrecisionLender, it is a more traditional html web-forms based application.

See also

This article was sourced from Creative Commons Attribution-ShareAlike License; additional terms may apply. World Heritage Encyclopedia content is assembled from numerous content providers, Open Access Publishing, and in compliance with The Fair Access to Science and Technology Research Act (FASTR), Wikimedia Foundation, Inc., Public Library of Science, The Encyclopedia of Life, Open Book Publishers (OBP), PubMed, U.S. National Library of Medicine, National Center for Biotechnology Information, U.S. National Library of Medicine, National Institutes of Health (NIH), U.S. Department of Health & Human Services, and USA.gov, which sources content from all federal, state, local, tribal, and territorial government publication portals (.gov, .mil, .edu). Funding for USA.gov and content contributors is made possible from the U.S. Congress, E-Government Act of 2002.
 
Crowd sourced content that is contributed to World Heritage Encyclopedia is peer reviewed and edited by our editorial staff to ensure quality scholarly research articles.
 
By using this site, you agree to the Terms of Use and Privacy Policy. World Heritage Encyclopedia™ is a registered trademark of the World Public Library Association, a non-profit organization.
 


Copyright © World Library Foundation. All rights reserved. eBooks from Project Gutenberg are sponsored by the World Library Foundation,
a 501c(4) Member's Support Non-Profit Organization, and is NOT affiliated with any governmental agency or department.