Net Charge-Off (NCO): The 2025 Guide for Aussie Borrowers and Investors

If you’ve ever wondered how banks measure the risk of lending money or why certain types of loans become more expensive, it often comes down to one crucial metric: the net charge-off (NCO). As Australia’s financial system continues to evolve in 2025, understanding NCOs can help both borrowers and investors make smarter decisions.

What Is a Net Charge-Off (NCO)?

A net charge-off is the amount of debt a lender writes off as a loss, minus any recoveries from previously charged-off loans. In simple terms, it’s the portion of loans that a bank or credit provider doesn’t expect to ever collect, after accounting for what’s been recovered from defaulted borrowers.

• Gross charge-off: The total value of bad debts written off.
• Recoveries: Amounts collected on loans previously written off.
• Net charge-off: Gross charge-offs minus recoveries.

Banks use NCOs as a barometer of credit quality and portfolio risk. Regulators, investors, and analysts watch these numbers closely, especially during economic shifts.

Why Are NCOs Important in 2025?

This year, several factors are making NCOs a hot topic:

• Rising interest rates: As the Reserve Bank of Australia (RBA) continues to keep rates elevated to manage inflation, more borrowers are struggling with repayments, leading to higher default rates.
• Cost of living pressures: In 2025, household budgets remain tight. Higher energy bills, rents, and food prices are pushing some borrowers beyond their limits.
• Changes in lending standards: Banks and non-bank lenders are tightening credit criteria, reacting to a modest uptick in NCOs across unsecured lending, credit cards, and some small business loans.

For example, the Australian Prudential Regulation Authority (APRA) reported in its March 2025 update that net charge-offs on credit cards rose to 3.2%, up from 2.6% a year earlier. Personal loan NCOs also ticked higher, though mortgage NCOs remain historically low due to robust property prices and lender forbearance programs.

How NCOs Impact Borrowers and the Credit Market

NCO trends don’t just affect banks—they also shape the products and interest rates available to everyday Australians. Here’s how:

• Interest rates and fees: Lenders factor NCOs into pricing. Higher NCOs can mean steeper rates for riskier products like credit cards or unsecured personal loans.
• Loan availability: An uptick in NCOs may prompt lenders to tighten approval criteria, making it harder for marginal borrowers to access credit.
• Investor confidence: Rising NCOs can spook bank shareholders or investors in securitised loan products, impacting share prices and funding costs.

For instance, several major banks in their 2025 half-year results flagged slightly increased provisioning for bad debts, pointing to NCOs as a key metric behind the move. This doesn’t just affect the banks’ bottom lines—it can also lead to more conservative lending and, in turn, slower economic growth.

Managing the Risk: What Borrowers and Investors Should Watch

Whether you’re applying for a loan, running a business, or investing in bank shares, tracking NCO trends can help you stay ahead of the curve. Here’s what to look out for in 2025:

• Product type: Credit cards and unsecured loans typically have higher NCO rates than home loans.
• Economic signals: Watch for APRA and RBA releases on loan arrears and charge-offs—they’re early warning signs for shifts in the credit cycle.
• Lender communications: Pay attention to changes in lending criteria or pricing, especially if you’re in the market for new credit.

On the upside, Australia’s banking sector remains well-capitalised, with regulatory buffers designed to absorb shocks. But as households and businesses continue to navigate 2025’s economic headwinds, the NCO figure remains one of the most telling indicators of financial stress—and resilience.