NPL
Nonperforming Loan (NPL) Definitions, Types, Causes, Consequences:
A nonperforming loan (NPL) is a loan that is in default due to the fact that the borrower has not made the scheduled payments for a specified period. Although the exact elements of nonperforming status can vary depending on the specific loan’s terms, “no payment” is usually defined as zero payments of either principal or interest.
The specified period also varies, depending on the industry and the type of loan. Generally, however, the period is 90 days or 180 days.
- A nonperforming loan (NPL) is a loan in which the borrower is in default and hasn't made any scheduled payments of principal or interest for a certain period of time.
- In banking, commercial loans are considered nonperforming if the borrower is 90 days past due.
- The International Monetary Fund considers loans that are less than 90 days past due as nonperforming if there's high uncertainty surrounding future payments.
- However, there is no standard or definition of NPLs.
- Some banks opt to sell NPLs to other banks or investors to free up capital and/or focus on performing loans that bring in income.
DEBT MANAGEMENT
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Key Takeaways
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