9 Key Metrics That Help in Loan Portfolio Analysis to Mitigate Risk & Loss.pptx

Analyzing a loan portfolio is crucial for financial institutions to manage risk effectively and minimize losses. By evaluating key metrics, institutions can assess the performance of their loan portfolio and make informed decisions to mitigate potential risks. Let’s explore nine key metrics that are commonly used in loan portfolio analysis, along with their formulas and significance.

1. 9 Key Metrics That Help in Loan Portfolio Analysis to Mitigate Risk & Loss www.brytsoftware.com

2. Analyzing a loan portfolio is crucial for financial institutions to manage risk effectively and minimize losses. By evaluating key metrics, institutions can assess the performance of their loan portfolio and make informed decisions to mitigate potential risks. Let’s explore nine key metrics that are commonly used in loan portfolio analysis, along with their formulas and significance.

3. 01 02 Loan Portfolio Yield Net Interest Margin (NIM) (Interest Income - Interest Expense) / Average Earning Assets (Interest Income + Fees) / Average Loan Portfolio Significance: Measures the overall return generated by the loan portfolio, indicating its profitability. Significance: Reflects the efficiency of the institution in generating income from its interest-earning assets.

4. 03 04 Loan-to-Deposit Ratio Loan Loss Reserve Ratio Loan Loss Reserves / Total Loans Total Loans / Total Deposits Significance: Indicates the proportion of loans funded by customer deposits, highlighting liquidity and funding risk. Significance: Represents the provision for potential loan losses, providing insight into the portfolio's credit quality.

5. 05 06 Non-Performing Loan (NPL) Ratio Portfolio at Risk (PAR) (Outstanding Portfolio Balance of Loans Overdue by 30+ Days / Total Portfolio Balance) x 100 Non-Performing Loans / Total Loans Significance: Measures the percentage of loans that are at risk of default, indicating credit risk exposure. Significance: Indicates the percentage of the portfolio at risk of default, providing insights into credit risk exposure.

6. 07 08 Average Loan Size Portfolio Diversification Ratio (Total Loan Portfolio / Number of Different Loan Products) / Total Loan Portfolio Total Loan Portfolio / Number of Loans Significance: Indicates the average size of loans, helping assess the institution's lending strategy and risk exposure. Significance: Measures the level of diversification in the loan portfolio, reducing risk from concentration in a single product.

7. 09 Client Indebtedness Ratio (Total Client Loan Balance / Average Client Savings Balance) x 100 Significance: Measures the level of client indebtedness relative to savings, indicating client financial health and repayment capacity.

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