Non-Performing Loan
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Definition of Non-Performing Loan
Non-performing loan (NPL) refers to a type of debt instrument, typically a loan or credit facility, that has not been repaid by the borrower according to the agreed-upon terms.
It is considered in default when the borrower fails to make principal and interest payments for a specified period, often exceeding 90 days.
NPLs indicate credit risk and potential financial instability for lenders, requiring additional efforts for recovery, restructuring, or liquidation of the loan.
What is Non-Performing Loan?
Non-performing loan (NPL) is a loan or credit arrangement where the borrower has failed to fulfill their repayment obligations as stipulated in the loan agreement.
This could involve missing principal and interest payments for an extended period, usually beyond 90 days. NPLs signal financial stress, credit quality deterioration, and potential losses for lenders.
Managing NPLs involves strategies such as loan workout plans, asset sales, or legal action to recover funds owed by the borrower.
What are examples of Non-Performing Loan?
Retail Non-Performing Loan
A consumer fails to make credit card payments for several months due to unexpected medical expenses, resulting in an NPL.
Corporate Non-Performing Loan
A manufacturing company defaults on a business loan due to declining demand and operational challenges, leading to an NPL.
Secured Non-Performing Loan
A borrower defaults on a mortgage, and the value of the property has decreased, making the collateral insufficient to cover the loan.
Unsecured Non-Performing Loan
An individual fails to repay a personal loan due to job loss, resulting in an NPL without collateral for recovery.
Doubtful Non-Performing Loan
An energy company experiences financial difficulties, causing a business loan to become doubtful as the company's prospects worsen.
Substandard Non-Performing Loan
A small business owner struggles with cash flow issues, leading to a substandard status for their business loan.
Sovereign Non-Performing Loan
A country faces economic challenges, leading to difficulties in repaying foreign loans, classifying them as sovereign NPLs.
Loss Non-Performing Loan
A real estate developer defaults on a substantial loan, and the lender expects to recover only a fraction of the outstanding amount.
