Non-Performing Loan (NPL) Ratio
Proportion of loans that are in or near default
What is Non-Performing Loan (NPL) Ratio?
Non-performing loan ratio is the percentage of a lender's loan portfolio that is in default or close to it. It shows the quality of the loans a financial institution holds.
A rising ratio signals credit problems that may lead to losses and requires closer risk management.
How this KPI is measured
- Function
- Legal, Risk & Compliance
- Sub-function
- Credit Risk
- Industry
- Financial Services
- Type
- Lagging
- Impact
- Risk
- Unit
- %
- Measurement frequency
- Quarterly
- Formula
- (Non-performing loans / Total loan portfolio) × 100
How to calculate it
Divide non-performing loans by the total loan portfolio, and multiply by 100.
For example, if 30,000,000 of a 1,000,000,000 portfolio is non-performing, the ratio is 3%.
A loan is usually classed as non-performing when payments are overdue by a set period, often 90 days, but definitions vary by regulator, so follow the one that applies to you.
Where it is used
Monitoring credit quality
Track portfolio health.
Setting provisions
Plan for losses.
Meeting regulatory reporting
Report to supervisors.
How to improve it
Tips and common mistakes
- Definitions differ by regulator.
- Treat customers in difficulty fairly.
- Look at trends, not just the level.
More Legal, Risk & Compliance kpi library
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