Portfolio-loss metric comparing charge-offs, usually net charge-offs, with the loan base used for the measurement period.
The charge-off rate is a credit-quality metric that compares charge-offs, usually net charge-offs, with the size of the loan portfolio used as the measurement base. It helps lenders, investors, and regulators judge how much of a portfolio is being lost through loans deemed uncollectible.
A simple charge-off number can look large or small without context. The rate matters because it scales losses to the portfolio size, which makes trends easier to compare across time, business lines, or institutions.
The exact calculation can vary by reporting framework, but the basic logic is consistent:
In practice, the numerator often uses net charge-offs rather than gross charge-offs, so recoveries are already reflected in the rate.
| Input | What it represents |
| — | — |
| Charge-Off | Recognition that a debt is unlikely to be collected in full |
| Net Charge-Offs | Charge-offs reduced by recoveries |
| Loan base | Total or average loans used for the measurement period |
If a bank reports $5 million of net charge-offs against a $500 million loan base, the charge-off rate is 1%. That means losses recognized through charge-offs equaled about 1% of the loans measured for the period.
Delinquency Rate tracks overdue accounts that may still be cured. Charge-off rate reflects loans that have moved into recognized loss territory.
Default Rate focuses on contractual failure, while charge-off rate focuses on accounting loss recognition.
Charge-Off: Underlying loss-recognition event feeding the metric.
Net Charge-Off: Common numerator used in the rate calculation.
Delinquency: Earlier-stage payment stress that can precede charge-offs.
Loan Loss Provision: Reserve-building expense often analyzed alongside realized charge-off performance.