Percentage of Commercial Loans Subject to Pre-Payment Penalty

Percentage of Commercial Loans Subject to Pre-Payment Penalty

KPI Details

Percentage of Commercial Loans Subject to Pre-Payment Penalty measures the dollar amount of outstanding commercial loans managed by the institution that are subject to a pre-payment penalty in relation to the total dollar amount of outstanding commercial loans managed at the same point in time. A higher percentage of commercial loans subject to pre-payment penalties illustrates that the financial institution is protected from future pre-payments of the principal loan amount, which guarantees the payment of interest based on the initial loan parameters. This measurement is important in understanding and stabilizing interest and principal payment cash flow from borrowers.

KPI Definition

The dollar amount of outstanding commercial loans managed by the institution that is subject to a pre-payment penalty divided by the total dollar amount of outstanding commercial loans managed at the same point in time, as a percentage.

KPI Best Practices

• Manage risk portfolio well enough to discourage borrowers form paying off loan principal
• Create provisions aside from flat rates such as declining balance prepayment (i.e., penalty decreases as loan matures)
• Well thought-out and strategic positioning to persuade borrower to agree to prepayment terms

KPI Calculation Instructions Percentage of Commercial Loans Subject to Pre-Payment Penalty?

Two values are used to calculate this KPI: (1) the dollar amount of outstanding commercial loans managed by the institution that are subject to a pre-payment penalty, and (2) the total dollar amount of outstanding commercial loans managed at the same point in time. The numerator includes all pre-payment penalty commercial loans. Include all outstanding loans in the denominator.

KPI Formula :

(Dollar Amount of Outstanding Commercial Loans Subject to a Pre- Payment Penalty / Total Dollar Amount of Outstanding Commercial Loans Managed) * 100