Definition:

Non-Interest Income refers to the revenue generated by financial institutions from sources other than interest on loans. It includes fees, service charges, and other income streams that do not involve interest payments.

Examples

Examples of non-interest income include service fees, account maintenance fees, transaction fees, ATM fees, investment management fees, and income from trading activities.

Formula:

Non-Interest Income = Total Revenue - Interest Income

How to use the metric:

Non-interest income is used to assess the diversification of a financial institution's revenue streams. A higher proportion of non-interest income can indicate a more stable revenue base, as it is less sensitive to interest rate fluctuations.

Limitations:

Non-interest income can be volatile, especially if it heavily relies on trading activities or one-time fees. Additionally, excessive reliance on non-interest income might indicate a lack of core lending business.

Applies to:

This metric is most applicable to the banking and financial services industry, where institutions generate significant revenue from non-lending activities.

Doesn't apply to:

Non-interest income is less relevant to industries outside of financial services, such as manufacturing or retail, where revenue is primarily derived from the sale of goods and services rather than financial transactions.

Summary:

Non-Interest Income is a critical component of a financial institution's revenue, offering insights into its revenue diversification and stability. While it provides a buffer against interest rate changes, reliance on non-interest income should be balanced to ensure a robust core lending business.