Interest spread

Interest spread is the difference between the average lending rate and the average borrowing rate for a bank or other financial institution. It is:

(interest income ÷interest earning assets) - (interest expense ÷interest bearing liabilities)

This is very similar to interest margin. If a bank's lending was exactly equal to its borrowings (i.e. deposits plus other borrowing) the two numbers would be identical. In reality, bank also has its shareholder's funds available to lend, but at the same time its lending is constrained by reserve requirements.

Changes in the spread are an indicator of profitability as the spread is where a bank makes its money.

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