Banking
Non-performing loan (NPL) ratio
The share of a bank's loans that borrowers have stopped paying.
Last reviewedWhat does Non-performing loan (NPL) ratio mean?
The NPL ratio is non-performing loans divided by total gross loans. A loan is usually treated as non-performing when a payment is more than 90 days overdue, or when the bank judges the borrower unlikely to pay in full. This 90-day test is used in the IMF's financial soundness indicators and in Basel Committee guidance, and the Reserve Bank of India uses it too. Example: 30 of bad loans in a book of 1,000 is an NPL ratio of 3 percent. Analysts also look at the coverage ratio: how much of those bad loans the bank has already provided for.
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Related terms
- Cost of riskLoan loss charges as a share of loans, usually quoted in basis points.
- CET1 capital ratio (and risk-weighted assets)A bank's highest-quality capital as a share of its risk-weighted assets.
- Balance sheetWhat a company owns and owes at one point in time.
- Net interest margin (NIM)What a bank earns on its loans and investments after paying for its funding, as a share of those assets.
- Cost-to-income ratioOperating costs as a share of operating income. Lower means a more efficient bank.
- Liquidity coverage ratio (LCR)Whether a bank holds enough easy-to-sell assets to survive 30 days of stress.
- Loan-to-deposit ratio (LDR)Loans divided by deposits: how much of its deposit base a bank has lent out.
- CASA ratioThe share of deposits held in low-cost current and savings accounts.