As NIMs Usefulness as a Performance Benchmark Diminishes for the Largest Banks, Are There Alternatives?
Because several factors have changed the revenue stream of the industry over the past two decades, NIM may no longer be the most effective tool for measuring performance. The change is most evident at the megabanks that now control the majority of assets in the industry. Because the megabank group disproportionately influences the NIM aggregate trend, NIM has become less useful as a tool for measuring industry performance. Megabanks themselves focus much more on net interest income than NIM in their earnings discussions with equity analysts and investors. One metric that could be used is risk-adjusting margins for credit costs, as described in the text box above. Another metric could be the calculation of the ratio of pretax net income to gross revenues. In this calculation, gross revenues are defined as interest income plus fee income. Essentially, this measure determines the percentage of total revenue that flows to the bottom line; it allows greater comparability across different bu
