A non-performing loan (NPL) is a type of loan that has not generated any payments of interest or principal for a significant period. In the financial industry, these loans are typically recognized based on specific criteria. One common criterion is when payments of interest and principal are overdue by 90 days or more. This means that the borrower has failed to make payments for three consecutive months or longer.
Another indicator of a non-performing loan is when at least 90 days of interest payments have been capitalized, refinanced, or deferred by mutual agreement between the lender and the borrower. This agreement usually occurs when the borrower is unable to make timely payments due to financial difficulties. By capitalizing or refinancing the interest, the lender essentially extends the loan’s maturity date, hoping that the borrower’s financial situation will improve, allowing them to resume regular payments.
The duration of a non-performing loan can vary depending on several factors, including the borrower’s financial circumstances, the lender’s policies, and the overall economic conditions. In some cases, non-performing loans may be resolved relatively quickly through restructuring, refinancing, or debt recovery processes. However, if the borrower’s financial situation does not improve, the loan may remain non-performing for an extended period, leading to potential write-offs or other remedial actions by the lender.
(Response: The duration of a non-performing loan is typically determined by factors such as the borrower’s financial condition and the effectiveness of remedial measures taken by the lender.)