Non-performing asset (NPA)
- Non-performing assets (NPAs) are noted on the bank's balance sheet after a long duration of default by the borrower.
- NPAs pose a financial burden to lenders; a considerable number of NPAs over a duration may indicate to regulators that a bank's financial solvency is at risk.
- NPAs are divided as doubtful assets, loss assets, or non-standard assets based on the time length past due and repayment probability.
- Non-performing assets are noted on the bank’s balance sheet or other financial institutions.
- For example, suppose a company with a $10 million loan with interest-only payments of $50,000 per month misses a payment for three consecutive months. To meet regulatory requirements, a lender may be required to categorize a loan as non-performing.
- Or the loan may also be classified as non-performing if the company pays all the interest but cannot repay the principal when due.
What are non-performing assets with examples?
When a person is paying an amount or loan late due to a delay in payment of either installments or principal is known as a non-performing asset. For example, if a company with a $10 million loan with interest-only payments of $50,000 per month will not pay for three consecutive months.