Gross loan portfolio

Gross loan portfolio (GLP) is the total outstanding principal balance of all loans a lender has on its books at a point in time, before deducting any loan loss allowance. It is the institution's core earning asset and the denominator for most credit and efficiency ratios in lending.

GLP = Sum of outstanding principal on all loans outstanding

It is a stock measure — a balance at a specific date — not a flow. This distinguishes it from disbursements, which measure lending activity over a period, and it is the source of one of the most common errors in lending analysis.

Gross vs Net Loan Portfolio

Net loan portfolio = Gross loan portfolio − Loan loss allowance

The gross figure shows the full amount contractually owed and outstanding. The net figure shows what the institution expects to actually recover, after the expected credit loss allowance.

• Gross loan portfolio - Basis: Outstanding principal before allowance

  • Shows: Contractual exposure
  • Used for: Ratio denominators, portfolio size, growth

• Net loan portfolio - Basis: After deducting loss allowance

  • Shows: Expected recoverable carrying value
  • Used for: Balance sheet carrying amount

Almost all standard lending ratios — PAR, write-off ratio, portfolio yield, operating expense ratio — use the gross figure. Mixing gross and net between numerator and denominator is a frequent and material reporting error.

What Is Included and Excluded

This is where definitions diverge most between institutions, and where comparability breaks down.

Included

• Current (performing) loans — outstanding principal
• Delinquent loans — regardless of how far overdue, as long as they remain on the balance sheet
• Restructured and rescheduled loans — still on book, so still in GLP
• Loans in legal recovery that have not yet been written off
• Loans on non-accrual status — the principal remains in GLP even where interest recognition has stopped

Excluded

• Written-off loans — derecognised, so removed from GLP entirely
• Accrued interest receivable — this is the standard convention, though not universal
• Undisbursed loan commitments and approved-but-not-released facilities — no principal outstanding yet
• Loans sold, assigned or securitised where the assets have been derecognised
• Investments, interbank placements and other receivables

Grey areas requiring an explicit policy

• Accrued and capitalised interest. Where unpaid interest has been capitalised into principal under a restructuring, it forms part of the outstanding balance and sits in GLP. Interest merely accrued and receivable normally does not. State the treatment.
• Deferred or unamortised fees. Under an effective interest rate method these adjust the carrying amount; whether they sit inside the reported GLP figure needs a stated policy.
• Staff and director loans. Often disclosed separately for governance reasons rather than folded into the client portfolio.
• Off-book or managed portfolios. Under partnership, agency or business correspondent arrangements, an institution may originate and service loans held on another party's balance sheet. These are not in GLP but form part of assets under management (AUM) or managed portfolio. Reporting AUM as GLP overstates the balance sheet materially and is a recurring source of confusion when comparing institutions with different funding models.

The Portfolio Roll-Forward

The clearest way to understand GLP — and the standard reconciliation any lender should be able to produce — is the roll-forward:

Closing GLP = Opening GLP + Disbursements − Principal repayments − Write-offs ± FX translation ± Other adjustments

Note that only the principal component of repayments reduces GLP. Interest and fees collected are revenue and do not affect the portfolio balance.

Worked example

• Gross loan portfolio, 1 January: 8,000,000
• Add: loans disbursed during the year: 14,000,000
• Less: principal repayments received: (11,550,000)
• Less: loans written off: (450,000)
• Gross loan portfolio, 31 December: 10,000,000

The reconciliation should tie exactly. Where it does not, the usual culprits are top-up loans recorded as new disbursements without settling the original balance, restructured loans recorded as both a repayment and a disbursement, or write-offs posted outside the portfolio ledger.

Disbursements Are Not Portfolio

The roll-forward above makes the point clearly: this lender disbursed 14,000,000 in the year but ended with a portfolio of 10,000,000.

Disbursement is a flow; GLP is a stock. They are not interchangeable, and the gap between them widens as tenor shortens. A lender writing four-month loans will cycle its portfolio roughly three times a year, so annual disbursements can be several times the outstanding balance. A lender writing three-year loans will disburse far less than its portfolio each year.

The ratio between them is portfolio turnover:

Portfolio turnover = Disbursements in period / Average gross loan portfolio

In the example above: 14,000,000 / 9,000,000 = 1.56 times.

Two practical consequences:

• Claims of "we lent X last year" describe disbursement volume, not portfolio size, and the two convey very different things about balance sheet scale and funding requirement.
• Operating cost scales with disbursement count, not portfolio value. A short-tenor lender processes far more transactions per unit of portfolio, which is why operating expense ratios are structurally higher in microfinance than in longer-dated lending.

Average Gross Loan Portfolio

Most ratios pair a period flow (revenue, write-offs, operating expense) with GLP. Since the flow accrues across the period and GLP is a point-in-time balance, the denominator must be an average.

Two-point average: (Opening GLP + Closing GLP) / 2. Simple, and adequate for stable portfolios.

Thirteen-point average: the mean of month-end balances across the year plus the opening balance. Materially more accurate where the portfolio grew, contracted or moved seasonally.

The difference is not trivial. A portfolio growing from 8,000,000 to 10,000,000 evenly gives a two-point average of 9,000,000. If most of that growth landed in December, the true average exposure was closer to 8,300,000 — and every ratio using it, including the write-off ratio and portfolio yield, is understated by roughly 8%.

Rule: use the two-point average only when growth was broadly linear. Otherwise use monthly averaging, and state which method was applied.

Ratios That Use Gross Loan Portfolio

• Portfolio at risk (PAR>n): Outstanding balance of loans with payments overdue more than n days / GLP
• Write-off ratio: Write-offs in period / Average GLP
• Portfolio yield: Financial revenue from portfolio / Average GLP
• Operating expense ratio: Operating expense / Average GLP
• Provision expense ratio: Impairment expense / Average GLP
• Provision coverage: Loan loss allowance / GLP (or / non-performing loans)
• Portfolio turnover: Disbursements / Average GLP
• Average outstanding loan size: GLP / Number of active loans

Because GLP sits in the denominator of nearly all of them, a definitional inconsistency in GLP propagates through the entire ratio set simultaneously — which is why the definition deserves more attention than it usually receives.

Common Errors

• Including accrued interest: Inflates GLP and understates PAR, portfolio yield, and the write-off ratio simultaneously.
• Using closing rather than average GLP: For period ratios on a growing portfolio, this systematically flatters every credit and efficiency ratio.
• Confusing disbursements with portfolio: The most frequent error in external communication and investor materials.
• Counting written-off loans: They are derecognised; retaining them in GLP overstates the asset and distorts PAR in the opposite direction to write-off cleaning.
• Double-counting top-ups: Where a top-up loan settles and replaces an existing balance, recording the full new amount as an addition without removing the original inflates both disbursements and portfolio.
• Reporting AUM as GLP: In partnership or off-book origination models.
• Netting the allowance inconsistently: Using net portfolio in a denominator where the ratio is defined on gross.
• Currency translation: In multi-currency portfolios, FX movement changes reported GLP without any lending activity, and must be shown as a separate line in the roll-forward rather than buried in disbursements or repayments.

Useful Segmentation

GLP is most informative when broken down, since a single total conceals nearly everything that matters:

• By product and by methodology (group versus individual)
• By loan cycle number — the mix between first-cycle and repeat borrowers is a leading indicator of both risk and retention
• By branch, region and loan officer
• By sector — concentration risk is invisible at portfolio level
• By delinquency bucket — the input to PAR
• By vintage (origination month) — the only cut that reliably attributes performance to the lending decision
• By remaining tenor — for liquidity and funding maturity matching