Non-performing loans refer to loans that have been defaulted. Generally speaking, if the borrower delays the repayment of principal and interest for three months, the loan will be regarded as a non-performing loan.
When banks determine that non-performing loans cannot be recovered, they should write them off from profits. When the expected loan cannot be recovered but has not yet been determined, provision for bad debt losses shall be made on the books. According to the risk basis, non-performing loans are divided into five categories: normal, concerned, secondary, suspicious and loss.
Calculation formula of non-performing loan ratio
Non-performing loan ratio = (subprime loan+doubtful loan+loss loan)/various loans × 100%