What are the key metrics for measuring a bank's credit quality?
Measuring a bank's credit quality involves evaluating several key metrics. The primary indicators include the Non-Performing Loans (NPL) ratio, which assesses the proportion of loans that are not being repaid, the coverage ratio that compares reserves to potential loan losses, and the cost of risk indicating the annual expenses related to potential defaults. By analyzing these metrics, stakeholders can gauge a bank's financial health and its ability to manage risks effectively in lending operations.