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Hub AI
Non-performing loan AI simulator
(@Non-performing loan_simulator)
Hub AI
Non-performing loan AI simulator
(@Non-performing loan_simulator)
Non-performing loan
A non-performing loan (NPL) is a bank loan that is subject to late repayment or is unlikely to be repaid by the borrower in full. Non-performing loans represent a major challenge for the banking sector, as they reduce profitability. They are often claimed to prevent banks from lending more to businesses and consumers, which in turn slows economic growth, although this theory is disputed.
In the European Union, the management of the NPLs resulting from the 2008 financial crisis has become a politically sensitive topic, culminating in 2017 with the decision by the European Council to task the European Commission to launch an action plan to tackle NPLs. The action plan supports the fostering of a secondary market for NPLs and the creation of Asset Management Companies (aka bad banks). In December 2020, this action plan was revised in the wake of the COVID-19 pandemic crisis.
Non-performing loans are generally recognised as per the following criteria:
In general, the management of NPLs is made difficult due to a variety of reasons:
There are two main approaches for dealing with NPLs:
In practice, both approaches can be used simultaneously, as illustrated by the European Commission's action plan on NPLs, while some authors have argued that systemic crisis generally require a more centralized approach.
Proactive measures to tackle NPLs include:
Although the 2020 has seen an actual decrease of non performing loans, the issue is expected to represent a major challenge for the banking industry in the post-COVID-19 era. The ECB has warned that the amount of NPLs in the Eurozone could reach up to 1.4 trillions euros of bad loans, however academic literature suggest the future rise of NPLs will be primarily driven by the pace of the economic recovery after COVID-19, and in particular the level of unemployment. In the context of the COVID-19 crisis, the deactivation of debt payment moratoria and tax deferral are also likely to cause an increase of NPLs.
Non-performing loan
A non-performing loan (NPL) is a bank loan that is subject to late repayment or is unlikely to be repaid by the borrower in full. Non-performing loans represent a major challenge for the banking sector, as they reduce profitability. They are often claimed to prevent banks from lending more to businesses and consumers, which in turn slows economic growth, although this theory is disputed.
In the European Union, the management of the NPLs resulting from the 2008 financial crisis has become a politically sensitive topic, culminating in 2017 with the decision by the European Council to task the European Commission to launch an action plan to tackle NPLs. The action plan supports the fostering of a secondary market for NPLs and the creation of Asset Management Companies (aka bad banks). In December 2020, this action plan was revised in the wake of the COVID-19 pandemic crisis.
Non-performing loans are generally recognised as per the following criteria:
In general, the management of NPLs is made difficult due to a variety of reasons:
There are two main approaches for dealing with NPLs:
In practice, both approaches can be used simultaneously, as illustrated by the European Commission's action plan on NPLs, while some authors have argued that systemic crisis generally require a more centralized approach.
Proactive measures to tackle NPLs include:
Although the 2020 has seen an actual decrease of non performing loans, the issue is expected to represent a major challenge for the banking industry in the post-COVID-19 era. The ECB has warned that the amount of NPLs in the Eurozone could reach up to 1.4 trillions euros of bad loans, however academic literature suggest the future rise of NPLs will be primarily driven by the pace of the economic recovery after COVID-19, and in particular the level of unemployment. In the context of the COVID-19 crisis, the deactivation of debt payment moratoria and tax deferral are also likely to cause an increase of NPLs.