Definition of non-performing loan NPL

A loan on which the borrower is not making interest payments or repaying any principal. At what point the loan is classified as non-performing by the bank, and when it becomes bad debt, depends on local regulations. Banks normally set aside money to cover potential losses on loans (loan loss provisions) and write off bad debt in their profit and loss account. In some countries, banks that have accumulated too many NPLs are able to sell them on - at a discount - to specially established asset management companies (AMCs), which attempt to recover at least some of the money owed.

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