What does a higher net interest margin indicate for a bank?

A higher net interest margin indicates that a bank is more efficient in generating income from interest payments. This metric reflects the difference between the interest income generated from loans and the interest paid on deposits relative to the bank's earning assets. When a bank achieves a higher net interest margin, it suggests that it is successfully managing its lending and borrowing activities, allowing it to earn more from its loans compared to what it pays in interest on deposits. This efficiency results in increased profitability, as the bank is effectively leveraging its core banking operations.

In this context, the other options do not align with the implications of a higher net interest margin. A bank having a higher amount of non-performing loans would typically lead to a negative impact on the net interest margin, as these loans do not generate income. Similarly, having more equity than liabilities pertains more to the bank's financial stability but does not directly relate to its income generation capabilities. Lastly, while operational risks are a consideration for banks, a higher net interest margin itself does not inherently indicate a likelihood of facing higher operational risks. Thus, the correct interpretation of a higher net interest margin is its reflection of the bank’s efficiency in income generation from interest payments.