Non-performing loan

A non-performing loan (NPL) or non-performing asset (NPA) 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. Several jurisdictions have prudential regulations that require a specific portion of a bank's NPL to be reserved to offset potential losses.

In the European Union, the management of 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 development 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.