The non-performing loans (NPL) ratio shows what share of a lender’s loan book is not being repaid as agreed. Supervisors, investors and NPL buyers use it as a first read on asset quality: a rising ratio usually means more credit losses are on the way, and a falling one often reflects workouts, write-offs or portfolio sales. What counts as a non-performing loan In the EU, a loan is non-performing when the borrower is more than 90 days past due on a material amount, or when the bank judges the borrower unlikely to pay in full without selling collateral, whatever the number of days past due (Article 47a, Capital Requirements Regulation, as amended by Regulation (EU) 2019/630). The “unlikely to pay” test means a loan can be non-performing even when payments are up to date. NPL ratio formula NPL ratio = gross non-performing loans ÷ gross total loans × 100 Both figures are gross carrying amounts, before provisions are deducted. This is the definition the European Banking Authority uses: the gross carrying amount of non-performing loans and advances divided by the gross carrying amount of all loans and advances (EBA/GL/2018/06). Worked example The figures below are illustrative, not data for any … Continue reading NPL Ratio: How to Calculate the Non-Performing Loans to Total Loans Ratio