What it is
When you take a loan, you pay interest. All of that, from every borrower, is the bank's interest income. Add interest from government bonds and from money lent to other banks.
It is the top line of a bank's income statement. It depends on two things: how much is lent (volume) and at what rate (price).
Under NFRS, interest is counted when it is earned, not when it is received. Interest on loans that have gone bad is handled carefully; NRB restricts booking interest a borrower has not actually paid.
How it is calculated
Interest on loans and advances + interest on investment securities + interest from BFIs and NRB, for the period, on an accrual basis.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's interest income for FY 2082/83 was Rs 3,795.54 crore on a loan book of about Rs 46,031.78 crore.
What good looks like
Growing with the loan book. If interest income grows while the loan book is flat, rates went up. Always read it with interest expense; the gap between them (net interest income) is what matters.
Watch out
- Higher interest income is not higher profit if deposit costs rose as fast.
- Interest booked but not received on weak loans can inflate this line; NRB forces such amounts into the regulatory reserve.
- Year-to-date, so Q2 is roughly twice Q1.
In Nepal
NRB's dividend procedure requires interest capitalised during grace periods, and other income not actually received, to be moved to a regulatory reserve rather than paid out.
Questions
It is the largest part. Total operating income also includes fees, commissions and trading gains.
Under accounting rules, yes, when it is earned. NRB limits how much unreceived interest can be treated as distributable.