Nonperforming Loans (NPLs)
Loans where the borrower has stopped making payments.
Definition
Nonperforming loans are loans that are 90 or more days past due or on nonaccrual status. They represent the bank's most troubled assets and are a leading indicator of potential charge-offs. The NPL ratio expresses nonperforming loans as a percentage of total loans.
Formula
NPL Ratio = Nonperforming Loans / Total Loans × 100
Why It Matters
Rising NPLs are one of the earliest warning signs of credit deterioration. Investors closely track NPL ratios by loan category (CRE, C&I, consumer) to assess where stress is emerging in the portfolio.