Non-Performing Loans of Commercial Banks: A Review
1Sewanyina Muniru, 2Nyambane David, 3Ongesa Tom and 4Manyange Michael
Corresponding Author Email: sewanyina.muniru@kiu.ac.ug
ABSTRACT
This literature review delves into non-performing loans (NPLs), focusing on their underlying causes, the effects they have on commercial banks, and various management strategies. By synthesizing insights from over 20 years of research, the review highlights how both macroeconomic factors such as economic downturns, rising unemployment, and inflation, and microeconomic factors like inadequate risk management and aggressive lending practices contribute to the rise of NPLs. The discussion extends to the significant ways NPLs affect bank profitability, including reduced interest income, increased provisions for loan losses, and liquidity challenges. Following the 2008 global financial crisis, regulatory measures have been crucial in addressing NPL growth, but their effectiveness can vary depending on the strength of local regulatory environments. The review emphasizes the need for proactive management strategies, such as loan restructuring and improved credit risk assessments, to help maintain bank stability and prevent future NPL issues. Moreover, it identifies critical gaps in current literature and points to potential directions for future research on NPLs, particularly in both developed and emerging markets. Overall, this review aims to provide a clearer understanding of NPLs and their implications for the banking sector
Keywords: Non-performing loans (NPLs), Commercial banks, Macroeconomic factors, Credit risk management, Loan restructuring
CITE AS: Sewanyina Muniru, Nyambane David, Ongesa Tom and Manyange Michael (2025). Non-Performing Loans of Commercial Banks: A Review. NEWPORT INTERNATIONAL JOURNAL OF CURRENT RESEARCH IN HUMANITIES AND SOCIAL SCIENCES 5(1): 82-85 https://doi.org/10.59298/NIJCRHSS/2025/5.1.828500