Commercial Loan Recovery Rate

Commercial Loan Recovery Rate

KPI Details

Commercial Loan Recovery Rate measures the rate of commercial loan balances collected in comparison to the total allowances for financial institutions' commercial credit losses at the end of a year. Higher Commercial Loan Recovery Rates are attributed to the high volumes of collected principal and interest on commercial loans and can indicate a larger proportion of assets to debt within the institution. Lower rates, on the other hand, can be an indication that lower volumes of payments are collected on outstanding loan balances, the institution has large amounts of debt, and that the financial institution has a lower chance of being repaid on the loan. Commercial Loan Recovery Rate is a good indication of credit risk held by the institution at any given time, based on those loans that are in default or close to being in default. Additionally, Commercial Loan Recovery Rates are important in understanding the value of all commercial loans held in relation to each other and can assist financial institutions in gauging the health of macroeconomic conditions based on market liquidity levels and default rates.

KPI Definition

The total dollar amount of non-performing commercial loan balances recovered (i.e., collected) by the financial institution divided by the total allowances for commercial credit losses at the end of a single year.

KPI Best Practices

• Segment delinquent loans by amount due, likelihood to pay, likelihood to make contact, etc.
• Implement payment schedules to allow the borrower to make multiple payments over a time period
• Create plan to restructure certain loans with new terms or collateral

KPI Calculation Instructions Commercial Loan Recovery Rate?

Two numbers are used to calculate this KPI: (1) total dollar amount of non-performing commercial loan balances recovered by a financial institution, and (2) total allowances for all commercial credit losses at the end of a single year. Use the sum of all dollars collected on nonperforming commercial loans, including principal and interest payments, by the financial institution for the numerator of this calculation. Nonperforming loans are those loans for which the debtor has not paid the financial institution for over 90 days, indicating the loan is in default or close to defaulting. For the denominator, use the sum of all credit allowances for which the financial institution is expected to not recover from debtors over the course of one year. Total allowance for commercial credit losses does not include potential interest to be earned from borrower payments.

KPI Formula :

(Dollar Amount of Recoveries from Non-Performing Commercial Loans / Total Allowance for Commercial Credit Losses) * 100