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Investment Dictionary

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Non-Performing Loan Ratio


Non-performing loan ratio measures the quality of the loan portfolio of the financial institution. This financial ratio compares non-performing loans to the total loan portfolio (loans are assets for the bank), and the higher ratio means higher risk of losses for some of the loans. Non-performing loans are those loans that are late on payments (common term is 90 days but it may depend on the financial regulations in the market).


This ratio fluctuates over time in the whole financial sector. Basically, it depends on the financial stability of the debtors and during instability in financial markets non-performing loans ratio increases but during calm period it is usually lower.


Non-performing loan ratio formula

Non-performing loans ratio = Non performing loans / Total portfolio of loans




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