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a $3 million dollar loan paying annual interest at a 5% rate has been classified as stage 3 by the lender. expected credit losses over the next 12 months are $80,000. however, expected credit losses over the life of the loan are $1 million. how much net interest income is the lender permitted to record in its income statement for the current year?

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The lender is permitted to record $100,000 in net interest income on its income statement for the current fiscal year.

What is net interest income?

  • The difference between revenue generated by interest-bearing assets and the cost of servicing liabilities is referred to as net interest income.
  • Commercial and personal loans, mortgages, construction loans, and investment securities are common assets for banks. Customers' deposits make up the majority of the liabilities.
  • The distinction between the revenue caused by assets loans, mortgages, and securities and the interest costs on liabilities, such as deposits in checking and savings accounts and CDs, is referred to as net interest income.
  • Net interest income is calculated by subtracting interest-bearing liabilities from interest-bearing assets.

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