Non-Performing Loan (NPL)

Non-Performing Loan (NPL)

A Non-Performing Loan (NPL) is a loan in which the borrower is in default and has not made scheduled payments for a specified period, typically 90 days or more. In this case, the lender is unable to collect the principal or interest payments, leading to a significant risk of loss. NPLs are classified as such because they do not generate income for the lender and are considered a Liability on the bank’s balance sheet.

Examples of Non-Performing Loans

• A mortgage loan where the homeowner has not made any payments for six months due to financial difficulties.
• A personal loan where the borrower has missed three consecutive monthly payments due to unemployment.
• A business loan that has not received any payments for over 90 days because the business has ceased operations.

Cases of Non-Performing Loans

In the aftermath of the 2008 financial crisis, many banks faced a significant rise in NPLs as borrowers defaulted on mortgages. For instance, the subprime mortgage crisis led to millions of homeowners bEINg unable to keep up with their mortgage payments, resulting in widespread Foreclosures.