An Analysis of The Causes and Impact of Non-Performing Assets in The Banking Sector

Abstract

The banking industry is essential to the economy because it makes financial intermediation easier and provides capital for profitable projects. However, the problem of non-performing assets (NPAs) is one of the major difficulties that banks confront. An asset, especially one that is leased, is referred to as a "non-performing asset" if it no longer brings in money for the bank. An "NPA" refers to a credit facility where the payments of interest or principal have exceeded the specified due date. A high percentage of non-performing assets (NPAs) in the banking sector has an adverse effect on the stability of each bank and the overall health of the financial system as a whole, restricting the availability of new loans and obstructing credit to productive industries. NPAs pose a risk to financial stability and obstruct economic efficiency since they can reduce bank profitability, degrade capital levels, and obstruct fundraising attempts. The banking sector serves as the backbone of any economy, facilitating the flow of funds and supporting economic growth. However, one persistent challenge faced by banks worldwide is the issue of non-performing assets (NPAs). Non-performing assets, also known as bad loans, refer to loans and advances that have ceased to generate income for the bank due to default in repayments by borrowers or the inability to pay interest