DEFINITION of 'Problem Loan Ratio'

A ratio in the banking industry that denotes the percentage of problem loans to sound ones. The problem loan ratio is ultimately a measure of the health of the banking and lending industries and the economy. A higher ratio means a greater number of problem loans and vice-versa.

BREAKING DOWN 'Problem Loan Ratio'

The problem loan ratio can be broken down by the level of delinquency of loans, such as those less than 90 days past due versus those more severely in arrears. This ratio increased across the board during the 2007-2009 recession and subprime fallout. This ratio can apply to specific banks, bank branches or the industry as a whole.

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