Page 6 - Bank Financials (I)

Nonperforming Loans Ratio:

Because banks are so leveraged, it’s critical that they only

invest in assets with little risk of default. Analysts use the

NPL ratio to measure how lenders perform in this regard.

It’s calculated by dividing a bank’s nonperforming loans by

total loans. A good rule of thumb is that the NPL ratio

should be less than 1% through all stages of the credit cycle.