The net charge-offs ratio (NCO ratio) is calculated as the amount of net charge-offs over total loans. Net charge-offs represent the amount of asset write-downs minus recoveries of previous write-downs. A charge-off or asset write-down represents the removal of an account from a bank’s books as an asset after it has been delinquent for a period of time and the lender absorbs the outstanding balance as a loss (Liang, 2013)
What is the 'Net Charge-Off Rate'
The net charge-off rate is the dollar amount representing the difference between gross charge-offs and any subsequent recoveries of delinquent debt. It is often a percentage representing that amount of debt that a company believes it will never collect compared to average receivables. Debt that is unlikely to be recovered is often written off and classified as gross charge-offs. If, at a later date, some money is recovered on the debt, the amount is subtracted from the gross charge-offs to compute the net charge-off value.
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