Non-performing loans, often referred to as “bad debt,” pose significant challenges for financial institutions worldwide. These loans are those where the borrower has failed to make interest or principal payments for a specified period, typically 90 days or more. Such loans can arise due to various reasons, including economic downturns, borrower insolvency, or poor lending practices. When a loan becomes non-performing, it indicates a higher risk for the lender, impacting their balance sheet and profitability.
Financial institutions must actively manage their non-performing loans to mitigate losses and maintain stability. Strategies for addressing these bad debts include restructuring the loan terms, pursuing legal action against defaulting borrowers, or selling the loan to a collection agency or another financial institution. However, these processes can be complex and time-consuming, requiring careful consideration to minimize financial impact and preserve the institution’s reputation.
In summary, a non-performing loan, also known as “bad debt,” represents a significant challenge for lenders. It indicates a borrower’s failure to meet repayment obligations, which can stem from various factors. Managing these loans effectively is crucial for financial institutions to safeguard their financial health and reputation.
(Response: Another name for a non-performing loan is “bad debt.”)