It stands for net interest income; the difference between the interest income a bank or a lending institution earns from lending money to clients and the interest it pays to mobilize funds from depositors and other fund providers. More specifically, net interest income constitutes the difference between the revenue (interest revenue) a bank (broadly, a lender) earns from its interest-bearing assets (such as such as loans, mortgages and debt instruments held/ securities) and the expenses (interest expenses) of its interest-paying liabilities (interest-burdened liabilities).

Net interest income is a profitability measure for banks and lenders that captures the difference between a bank’s total interest income and the interest expense incurred during a specific period of time.

Changes in market interest rates — both in absolute and relative terms— have probably a major effect on net interest income in the short term. Reaction (sensitivity) to changes in market rates depends on a bank’s asset and liability maturity structure and the frequency of a bank’s loan and deposit rates resetting (in situations where market rates change prior to maturity).

Asset sensitivity arises when a bank’s assets have shorter maturities or reset faster than its liabilities. Liability sensitivity results from liabilities having shorter maturities or more frequent resetting (relative to assets). Such situations imply that a parallel increase in the yield curve would increase net interest income for asset-sensitive banks (banks with more rate-sensitive assets) and would reduce it for with liability-sensitive banks (banks with more rate-sensitive liabilities).