Category: Banking and Money

BANKING #6 NET INTEREST MARGIN (NIM)

Net interest margin (NIM) is a measure of the difference between interest paid and interest received, adjusted for the total amount of interest-generating assets held by the bank.

Net interest margin (NIM) reveals the amount of money that a bank is earning in interest on loans compared to the amount it is paying in interest on deposits.

NIM is one indicator of a bank’s profitability and growth.

In short, net interest margin is one indicator of a bank’s profitability and growth. It reveals how much the bank is earning in interest on its loans compared to how much it is paying out in interest on deposits.

Net interest margin is not the same as net interest income. Net interest income is the numerator in the equation for net interest margin, but the denominator is the bank’s total assets, and that can change in proportions that are not reflected in the numerator.

Net interest margin is not the same as profitability, either. Most banks also earn significant income from fees and service charges of various kinds, and those are not reflected in net interest margin.

BANKING #3 MONEY MARKET INSTRUMENTS

We first focus on the instruments traded in the money market and then turn to those traded in the capital market.

Because of their short terms to maturity, the debt instruments traded in the money market undergo the least price fluctuations and so are the least risky investments. The money market has undergone great changes in the past three
decades, with the amount of some financial instruments growing at a far more rapid rate than others.

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FYI #2 WHAT DO SMES WANT MOST FROM THEIR BANKS IN ASIA-PACIFIC?

Banks in Asia-Pacific have a huge opportunity to redefine their relationship with SMEs to enhance their digital journeys – at the same time, the human-side of the SME/bank relationship remains important.

SMEs in Southeast Asian countries of Malaysia, Indonesia and Vietnam are more likely to have received financial support during the pandemic, and more likely to be looking for seven ancillary services than other Asia-Pacific markets of Australia, Hong Kong and Singapore.

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BANKING #2 STRUCTURE OF FINANCIAL MARKETS

As from the previous post, we understand the basic function of financial markets, let’s look at its structure in this post:

Debt and equity markets: Just simple is the market to obtain the funds. It has 2 kinds: Issuing debt instrument (ex: Bonds) and issue the equities stock (Common Stock, ESOP). The main disadvantage of owning a corporation s equities rather than its debt is that an equity holder is a residual claimant; that is, the corporation must pay all its debt holders before it pays its equity holders. The advantage of holding equities is that equity holders benefit directly from any increases in the corporation s profitability or asset value because equities confer ownership rights on the equity holders

Primary and Secondary market: A primary market is a financial market in which new issues of a security, such as a bond or a stock, are sold to initial buyers by the corporation or government agency borrowing the funds. A secondary market is a financial market in which securities that have been previously issued can be resold. The primary markets for securities are not well known to the public because the selling of securities to initial buyers often takes place behind closed doors. An important financial institution that assists in the initial sale of securities in the primary market is the investment bank. It does this by underwriting securities: it guarantees a price for a corporation s securities and then sells them to the public.

Exchanges and over the counter market: are where currencies are converted so that funds can be moved from one country to another. Activities in the foreign-exchange market determine the foreign-exchange rate, the price of one currency in terms of another.

Money and capital markets: Another way of distinguishing between markets is on the basis of the maturity of the securities traded in each market. The money market is a financial market in which only short-term debt instruments (generally those with original maturity of less than one year) are traded; the capital market is the market in which longer-term debt (generally those with original maturity of one year or greater) and equity instruments are traded.

FYI #1 ARE WE HEADED FOR A CASHLESS SOCIETY?

Predictions of a cashless society have been around for decades, but they have not come to fruition. For example, Business Week predicted in 1975 that electronic means of payment “would soon revolutionize the very concept of money itself,” only to reverse its view several years later. Despite the wider use of e-money, people still make use of a lot of cash. Why has the movement to a cashless society been so slow in coming?

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