Share of non-performing loans held by banks in the U.S. 1995-2019

In 2019, 0.89 percent of the loans that banks in the United States held were non-performing. This means that 99 percent of loan recipients were repaying their bank back at that time, which is a significant improvement from the 5.3 percent of non-performing loans in the aftermath of the Financial Crisis.

What are non-performing loans?

Banks do not expect all the loans they issue to be fully repaid. For this reason, part of the interest rate that they charge is a “risk premium”, a higher interest rate than the expected change in value. Banks generally use the interest rate on U.S. short-term government bonds as the “risk free rate”, then increase that rate based on the borrower’s credit score.

Loans and delinquency

Non-performing loans differ by loan types based on collateral. Collateralized loans are loans in which the lender has taken something to ensure repayment. If repayment does not occur, the lender keeps the collateral. A classic example would be taking jewelry to a pawn shop, but the same principle applies to mortgage foreclosures. Loans without collateral differ in that a bank cannot foreclose on student loan debt or a medical procedure.