What is net NPL and why does it matter?

Bangladesh Bank (BB) says the net non-performing loan (NPL) method gives a clearer picture of loan defaults. It works by deducting provisions and suspended interest from gross figures, showing only the part of loans still uncovered.

In practice, net NPL is calculated by taking bad loans, deducting the amounts already set aside, and dividing by total loans after the same deductions. This highlights the share of loans that remain truly at risk.

For example, if Tk 100 crore in loans are classified as bad, with Tk 10 crore in suspended interest and Tk 40 crore in provisions, the uncovered portion is Tk 50 crore. Against total loans of Tk 1,000 crore, the net NPL ratio comes to 5.26 percent.

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The central bank says this method is important because it identifies actual risk, provides a more accurate picture of financial health, and shows banks' capacity to absorb losses.

It also avoids exaggeration, since gross NPL figures can appear higher than the real exposure.

BB adds that net NPL is a more reliable measure for boards, shareholders, and foreign investors.

The approach also follows international standards, including IFRS 9's expected loss model and Basel III's credit risk framework, where provisions are treated as recognised losses.