Non-Performing Loan (NPL)
A loan in serious arrears with slim chances of full repayment.
Detailed Description
Non-Performing Loan (NPL)
What is a Non-Performing Loan (NPL)?
A Non-Performing Loan (NPL) is a loan on which the borrower is not making interest payments or repaying any principal, typically classified as non-performing when overdue by 90 days or more.
What are the characteristics of NPLs?
NPLs show a lack of timely payments, can be secured or unsecured, and require more intensive management and monitoring.
What causes Non-Performing Loans?
Common causes include economic downturns, job losses, significant medical expenses, poor lending practices, and unfavorable market conditions.
How do NPLs impact lenders?
NPLs can lead to reduced cash flow, increased operational costs, and stricter regulatory scrutiny for lenders.
What strategies do lenders use to manage NPLs?
Lenders may use loan restructuring, collections efforts, or sell NPLs to third-party debt collectors to manage these loans effectively.