What is the Net Interest Margin of Banks?

Conventional commercial banks' net interest margin (NIM) in March 2017 decreased by 25 basis points (bps) to 5.38 percent from its position at the end of 2016. This decrease in net interest margin was due to the average total productive assets of banks increasing by 6.59 percent to Rp 6.24 quadrillion (thousand trillion) in March 2017 compared to the end of 2016, while net interest income only increased by 1.78 percent to Rp 335.79 trillion.

The decrease in lending interest rates and the slowing growth of credit were the triggers for the decline in net interest margin. Only Group 1 Commercial Banks (BUKU 1) experienced an increase in net interest margin. The net interest margin of BUKU 1 banks in March 2017 increased by 0.2 bps to 6.32 percent from 6.3 percent at the end of 2016.

Meanwhile, BUKU 2 to BUKU 4 banks experienced a decrease in net interest margin. The deepest decline in net interest margin was recorded by BUKU 4 banks, namely 42 bps to 6.08 percent in March 2017 from 6.5 percent in December 2016. NIM is a ratio used to measure the bank management's ability to manage productive assets to generate net profit.