Roll rates explained: what your delinquency rate hides
Your delinquency rate can fall in a quarter when more loans go past due. A growing book makes the rate look better. DPD movement, the table of how loans roll between buckets from one month-end to the next, shows which way the older loans are going.
The movement table
Each row is where loans stood at the last month-end. Each column is where they stand now. Every row adds up to 100.
| This month-end | |||||
|---|---|---|---|---|---|
| Last month-end | Current | 1-30 | 31-60 | 61-89 | 90+ |
| Current | 97.4% | 2.6% | none | none | none |
| 1-30 | 62% | 24% | 14% | none | none |
| 31-60 | 18% | 21% | 39% | 22% | none |
| 61-89 | 6% | 8% | 14% | 41% | 31% |
| 90+ | 5% | 3% | none | 4% | 88% |
- Left of the diagonal: improved
- On the diagonal: stayed
- Right of the diagonal: rolled forward
The outlined row is the episode's example. Of the loans that were 31-60 days past due at the last month-end,22% rolled forward. That figure is the 31-60 roll rate. Illustrative numbers.
Chain the roll rates
Say last month's rates hold for each group of loans that follows. Start with 100,000 current loans and follow one path to 90+.
- 100,000Current
- rolls at 2.6%2,6001-30
- rolls at 14%36431-60
- rolls at 22%8061-89
- rolls at 31%2590+
About 25 loans reach 90+ along this one path. Bring the 31-60 roll rate down from22% to 15% and 80 becomes 55, and 25 becomes 17.
The episode in four answers
What is a roll rate?
A roll rate is the share of loans in one DPD bucket at the last month-end that sit in a worse bucket at this month-end. In the episode, 22 of 100 loans that were 31-60 days past due rolled forward, so the roll rate out of 31-60 is 22%. Count loans and it tells you how many moved; weight each loan by its balance and it tells you how much of the book moved.
Why can a delinquency rate fall while the book gets worse?
The rate divides past-due loans by every loan on the book, and new loans are too young to have missed a payment. In the example, 4,000 new loans joined in a quarter. Past-due loans rose from 500 to 540, yet the rate fell from 5% to 3.9% because the book grew from 10,000 to 14,000 loans. Underneath, the monthly roll rate out of 31-60 rose from 15% to 22%.
What does DPD count?
DPD is days past due. Miss an installment and a counter starts, measured from the oldest installment still unpaid. Lenders group it into buckets: current, 1-30, 31-60, 61-89 and 90+. Whether a loan is non-performing follows the regulator's rules, which look at more than days past due.
What does chaining roll rates tell you?
Multiplied along a path, roll rates turn a percentage into a count. In the illustration, 100,000 current loans rolling at 2.6%, 14%, 22% and 31% leave about 25 reaching 90+ along that one path. Bring the 22% down to 15% and about 17 arrive. Cutting any one link by about a third cuts the end of the path by about a third.
Full transcript
The video's English captions, as spoken. Select a time to play from that point.
0:00The rate that fell
Say your delinquency rate fell this quarter. Your book got worse. Both can be true. The rate dropped from 5% to 3.9%, while loans past due climbed from 500 to 540. So what improved? The rate shows where the book stands today. It can't show which way the loans are moving. By the time it rises, they've already rolled. In this video, we'll explain DPD movement: the table that tells a better rate from a better book. Here's the plan. One, what DPD counts. Two, snapshot and movement. Three, reading the movement table. Four, the puzzle, solved. Five, chaining roll rates. And six, what to ask on Monday.
0:48What DPD counts
Start with DPD: days past due. Miss an installment and a counter starts, from the oldest installment still unpaid. Lenders group that counter into buckets. Current. 1-30 days. 31-60. 61-89. And 90+. 90+ is a monitoring bucket. Whether a loan is non-performing follows the regulator's rules, which look at more than days past due.
1:16Snapshot and movement
Count the loans in each bucket and you get a delinquency report: a snapshot of where the book stands. It also explains half the puzzle. This quarter, 4,000 new loans joined, all too new to have missed a payment. Past-due loans rose from 500 to 540, but now they are divided by 14,000 loans, not 10,000. The rate fell because the book grew. So is the old book getting worse? A snapshot can't say which way any loan is moving. For that, match every loan across two snapshots: its bucket at the last month-end, and its bucket at this one. That comparison is DPD movement. Between the snapshots, three things happen. Most loans stay put. Some roll forward: with no payment, the counter adds about 30 days a month, usually one bucket. And some move back. The two directions differ. Rolling forward is gradual. Moving back can be sudden: one payment that clears the overdue installments sends the counter back to zero.
2:21Reading the movement table
Put both snapshots in one table. Rows are where loans stood at the last month-end. Columns are where they stand at this month-end. Take 100 loans that were 31-60 days past due at the last month-end, and are still on the book. 18 are current again. 21 improved to 1-30. 39 stayed. 22 rolled forward. 18, 21, 39, 22: 100. Every row adds up the same way. Left of the diagonal, loans improved. Right of it, they rolled forward. That 22% is a roll rate. This table counts loans. Weight each loan by its balance at the last month-end instead, and the same table shows how much of the book's money moved.
3:05The puzzle, solved
Now the other half of the puzzle. The rate fell because the book grew. Underneath it, the monthly roll rate out of 31-60 climbed from 15% to 22%, comparing the last month of each quarter. The snapshot improved. The roll rate got worse. Roll rates have one more use.
3:24Chaining roll rates
Chain them, and a percentage becomes a count. A simple illustration: say last month's rates hold for each group of loans that follows. Start with 100,000 current loans. 2.6% roll: 2,600. 14% of those: 364. 22%: 80. 31%: about 25 reach 90+ along this one path. Bring that 22% down to 15%. 80 becomes 55, and 25 becomes 17. Cut any one link by about a third, and the end of the path falls by about a third. The matrix shows you where to look. Which link to work first depends on the accounts and balances behind it, and on what has worked for your team before. Two questions for Monday.
4:12What to ask on Monday
Which roll rate worsened most last month? And which one should your team investigate first? We built Lokta's Vitals screen to run DPD movement from the last month-end to today, so you see this month's rolls while the month is still open. It highlights the heaviest forward roll and lists the accounts behind each forward move. Read mid-month, a roll rate is a month in progress. Some of these accounts may still pay before month-end. Until it closes, each one is a call your team can still make.
4:44Next episode: vintage curves
Next on Vitals: vintage curves.