KPI for Measuring of Net Loan Charge – Offs % posted in category Banking

WinningKPI - Banking - KPI for Measuring of Net Loan Charge – Offs % posted in category Banking

This indicator is for measuring the Net Loan Charge-Offs % value of the average loan balance. This is calculated by dividing the total value of the Net Loan Charge-Offs by the Average Loan Value, in a given time period.
The Charge –Offs are the loans that are classed as a loss, not likely to be repaid to the bank. This KPI is fundamental for the Bank's performance measurement, as a high % of Net Loan Charge-Offs has direct impact on the net profit margin of the bank.
This KPI can be used with other Banking KPIs to analyse the bank’s financial performance, such as Net Profit Margin KPI, CAR KPI, etc.

Formula:
Total value of Net Loan Charge-Offs/ Average Loan Balance x 100

KPI Units: %

KPI Time Frame: update annually

Posted by Oana Boteanu | Help to protect community: Flag for moderation

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Net loan charge offs are calculated as losses minus recoveries, on loans preciously charged off.

Example:

A bank wants to measure the % of net loan charges offs from the overall loan balance, over a period of one year.

The formula is calculated as following:

Average Net Loan Charge-Offs: $5.5m
Average Loan Balance: $500 million
Net Loan Charge Off %:
5.5m / 500m x 100= 1.1 %

Therefore, the Net loan Charge Offs account for 1.1 % of the total loan balance.

Statistics show that the overall net loan charge offs increasing sharply over the past decade, growing from around 1-1.5 % in 2000-2005, to as high as 3.5% in 2010.
The figure is decreasing to as low as 1.3 % in 2012.
Oana Boteanu | + | September 13, 2012 at 10:06 am

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