Net Charge-Off Rate

The value of loans a bank gave up on as uncollectible during the period (charge-offs, net of any later recoveries), annualized as a percentage of its average loans -- the realized-loss rate on the loan book. It is the clearest read on actual credit quality: a low, stable NCO rate (well under 1% for a diversified lender) signals a healthy book, while a rising rate is the concrete evidence that loans are going bad, usually showing up first in credit cards and commercial real estate. Read it alongside the loan-loss reserve: a bank whose charge-offs are climbing toward or past what it has reserved may need to take a larger provision, which hits earnings.

Related terms

10Y Treasury · Altman Z-Score · Asset Sensitivity · Basel III · Bond ETF · Bretton Woods

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