what is npl

NPL stands for non-performing loan, which is a loan that is in default or is unlikely to be repaid by the borrower in full. Non-performing loans are a major challenge for the banking sector, as they reduce profitability. Banks classify loans as non-performing when the repayments of principal and interest are due for more than 90 days or depending on the terms of the loan agreement. Once a loan is non-performing, the odds the debtor will repay it in full are substantially lower. In banking, commercial loans are considered non-performing if the debtor has made zero payments of interest or principal within 90 days, or is 90 days past due. For a consumer loan, 180 days past due classifies it as an NPL. High levels of NPLs can weigh on the economic growth of countries as they reduce banks’ profitability and their ability to lend, particularly to SMEs. There are two main approaches for dealing with NPLs: fostering secondary markets for NPLs that can offer the mechanism and liquidity required to write off bad loans, and restructuring the loans.