Non-Performing Loan - NPL
Categories: Bonds, Accounting
You’re the bank. Regrettably, you loaned money to a borrower who has stiffed you, and, uh...not in the good way. So now you have to go through all the enormous legal hassle to send the borrower a registered letter explaining their financial predicament, how they are in arrears, and what they need to do to get back on track.
When loans perform, they boringly just pay their interest and principal payments regularly, until the final payment when everything is paid off and their loan has sunset and is over, dead, gone, R.I.P. When loans don’t perform, there’s a whole structured process the lenders go through to make life miserable for the deadbeat liar who had promised and signed 87 times on the paperwork they gave the bank that they’d pay back the money, come hell or high water.
But...they didn’t. And now their loan is kind of like Steve Perry, the former lead singer of Journey. It’s non-performing.