9 Key Metrics That Help in Loan Portfolio Analysis to Mitigate Risk & Loss
                     9 Key Metrics That Help in 
Loan Portfolio Analysis to 
Mitigate Risk & Loss
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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.
01 02
Loan Portfolio Yield Net Interest Margin (NIM)
(Interest Income + Fees) / Average Loan  (Interest Income - Interest Expense) / 
Portfolio Average Earning Assets
Significance: Measures the overall return generated Significance: Reflects the efficiency of the institution in 
by the loan portfolio, indicating its profitability. generating income from its interest-earning assets.
03 04
Loan-to-Deposit Ratio Loan Loss Reserve Ratio
Total Loans / Total Deposits Loan Loss Reserves / Total Loans
Significance: Indicates the proportion of loans funded Significance: Represents the provision for potential 
by customer deposits, highlighting liquidity and funding loan losses, providing insight into the portfolio's credit 
risk. quality.
05 06
Non-Performing Loan Portfolio at Risk (PAR)
(NPL) Ratio
(Outstanding Portfolio Balance of Loans 
Non-Performing Loans / Total Loans Overdue by 30+ Days / Total Portfolio 
Balance) x 100
Significance: Measures the percentage of loans that Significance: Indicates the percentage of the portfolio 
are at risk of default, indicating credit risk exposure. at risk of default, providing insights into credit risk 
exposure.
07 08
Portfolio Diversification 
Average Loan Size
Ratio
Total Loan Portfolio / Number of Loans (Total Loan Portfolio / Number of Different 
Loan Products) / Total Loan Portfolio
Significance: Indicates the average size of loans, Significance: Measures the level of diversification in 
helping assess the institution's lending strategy and the loan portfolio, reducing risk from concentration in a 
risk exposure. single product.
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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