What it measures
A non-performing loan (NPL) is a loan on which the borrower is not making interest payments or repaying any principal. Banks report the total and an NPL ratio.
In one line: gross NPL ratio = non-performing loans / total loans. It is a percentage. Net NPL ratio subtracts the provisions the bank has already set aside against those loans.
How to read it
Lower is better. A rising ratio means more borrowers are failing to pay and the bank will need to set aside more for losses. The gap between gross and net shows how much of the problem is already covered by provisions.
Where it misleads
A single bank-wide ratio hides where the problem sits. A portfolio can look stable overall while one segment deteriorates fast. The ratio also depends on the bank's definition of when a loan turns non-performing and on whether loans are written off, which removes them from the numerator. A fast-growing loan book can also dilute the ratio, because new loans have not had time to go bad. Read it with Cost of Credit and Provisioning.
Worked example
BRI's Q2 2026 post gives gross NPL of 3.15% for the first half of 2026, down from 3.23% in the first half of 2025 and roughly flat against 3.29% at FY2025. Net NPL was 1.04%, against 0.99% a year earlier.
The segment breakdown shows what the single number hides. Commercial loans grew 58.1% to Rp72.2 trillion, while their NPL ratio worsened to 4.4% from 2.5% a year earlier. In SME the ratio improved to 5.2% from 5.4%. So an improving bank-wide ratio sat on top of a segment that was getting worse quickly.
Where to find it
Balance sheet and the loan quality note, plus the bank's ratio table.
See also: Cost of Credit, Provisioning, Credit Risk Metrics.