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.^[1] 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.^[2][3]

In the European Union, the management of the NPLs resulting from the global financial crisis of 2008 has become a politically sensitive topic, culminating in 2017 with the decision by the European Council^[4] 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.^[5]