NIM Contribution (Asset-Side/Liabilities-Side)

Definition

The NIM contribution is the difference between the interest contribution of the customer transaction and the opportunity contribution of the alternative transaction on the money and capital market for the duration of the reporting period .

Note Note

Difference determination is controlled by a +/- sign for asset or liabilities-side transactions.

End of the note.

Use

The NIM contribution is used as a profitability value in Bank Profitability Analysis.

Structure

The opportunity contribution is calculated based on the yield curve of the transaction currency.

The system similarly calculates the investment and financing contribution for interest-free balance sheet items from the interest contribution of the item and the opportunity contribution.

An important factor for calculating the NIM contribution is the period for which it is calculated. There are two basic calculation periods:

  • The time between two payment dates (dates at which there is a payment flow, i.e. an inflow or an outflow)

The NIM contribution for the period between two payment dates represents an internal base value used by the system to determine the opportunity interest.

  • The time between two reporting dates or costing dates (dates at which a periodic or key date costing is carried out)

The NIM contribution for the period between two reporting dates represents a result value used in Bank Profitability Analysis.

Costing is carried as follows, depending on the period you have chosen:

  • Between two reporting dates:

A prerequisite for determining the periodic result value of the NIM contribution between two reporting dates is that the NIM contributions for the periods between two payment dates have been calculated.

The calculation of the NIM contributions between two payment dates is based on the step-by-step determination of the following base values:

  1. Effective capital at the payment dates

  2. Effective interest rate of the customer transaction from the original cash flow

  3. Average effective tied-up capital between the payment dates

  4. Net present value of average effective tied-up capital between the payment dates

  5. NPV margin

  6. Straight-line margin (in this case an interest rate) as a quotient made up of the NPV margin and the net present value of the average effective tied-up capital between the payment dates

  7. NIM contribution between two payment dates as the product of the straight-line margin and the average effective tied-up capital between the payment dates.

The NIM contribution between two payment dates can be used to calculate the transfer price rate from the alternative cash flow.

  • Alternative cash flow as the original cash flow corrected by the NIM contributions between two payment dates

  • Effective interest rate of alternative transaction (transfer price rate) from the alternative cash flow

  • Between two reporting dates:

If the most important base values are known (effective capital at the dates of payment, effective interest rate of the customer transaction, and effective interest rate of the alternative transaction), the system can also calculate the NIM contributions between any two points in time and – most importantly – for the time between two reporting dates.

To determine the NIM contributions (from the effective capital) for any chosen period in time, the system calculates the following base values in a step-by step procedure:

  1. Effective capital at the start of the reporting period calculated from the effective capital at the last payment date plus the interest accrued up to the start of the reporting period

  2. Interest contribution (from effective capital) for the reporting period calculated from the effective capital valued with the effective interest rate for the duration of the reporting period at the start of the reporting period

  3. Opportunity contribution (from effective capital) for the reporting period calculated from the effective capital valued with the transfer price rate for the duration of the reporting period at the start of the reporting period

If the period between two payment dates measured in days is not the same for all payment periods, the daily transfer price rate is used instead of the transfer price rate (from the effective capital).

The result of these calculations is the NIM contribution between two reporting dates , which is simply the difference between the interest contribution (from the effective capital) for the reporting period and the opportunity contribution (from the effective capital) for the reporting period.