Net interest margin of banks in Europe Q1 2023, by country

The net interest margin (NIM) is a measure of profitability for banks. The metric displays the percentage a bank earns in interest as compared to the outgoing expenditures it pays it's customers. Although net interest margins were not high across Europe as of March 2023, all countries displayed a positive net interest margin.

Profitability and stability

Low profitability has been highlighted several times by the ECB as a key risk to the financial stability of the Euro area. There are several ways to examine profitability in the banking sector, such as the cost-to-income ratio. Prolonged low profitability can have a knock-on effect to an economy’s growth. On the other hand, sustained periods of higher than average profitability can also mean trouble as was seen in the period running up to the financial crisis.

Other key measures

There are several other metrics that can also be used. Return on equity (ROE), which divides net income by shareholders equity looks at how well a company’s management is using its assets to create profits. Another key measure of a bank's profitability is to look at the return on assets (ROA), which divides a bank’s net income by its total assets during a given period.