NPL Glossary
From Open Risk Manual
A Glossary of NPL Terms
The NPL Glossary is a collection of terms relevant for the management of problematic lending products. The glossary incorporates and extends the list of terms included in the BIS Guidance[1], the World Bank study[2] and the ECB Guidance[3]. The links are to more detailed articles that offer in-depth discussions and (where applicable) mathematical definitions / formulae.
You can help us maintain this glossary up-to-date by submitting additions / corrections (use the feedback form at the bottom). This glossary is provided as-is without any warranties of completeness and/or accuracy or other fitness for purpose. In case of doubt please consult the official sources applicable to your jurisdiction.
Five different perspectives on NPL
The terminology around NPL is convoluted as it involves a number of distinct perspectives:
- The Client Behavioural Perspective: Actions and behaviours of the debtor (borrower / counterparty)
- The Financial Institution internal Operational Perspective: Actions and decisions by the creditor (lender)
- The Financial Institution internal Accounting view: The status and visibility of the problem loan versus internal accounting and external disclosures
- The Regulatory Perspective: The status and visibility of the problem loan versus regulatory disclosures
- The Legal Perspective: The status and visibility of a problem loan in the context applicable jurisdiction
These perspectives apply through-out the lifecycle of the lending relationship
| 1. Term | 2. Short Definition | 3. Context | 4. Article Link |
|---|---|---|---|
| Performing / Pass / Standard | A relationship that conforms to the contractual cash flows | Behavioural | Non-Performing Loan |
| Delinquency | A condition of delinquency | Behavioural | Delinquency |
| Delinquency History | The record of delinquency status of a borrower | Behavioural | Delinquency |
| Worst Delinquency | The most sever form of delinquency in borrowers delinquency history | Behavioural | Delinquency |
| Delinquent Loan | The loan who's borrower is deliquent | Behavioural | Delinquent Loan |
| Debt Collection | The collection of receivables on behalve of a third party | Operational | Debt Collection |
| Direct Default | Migration into default without any cure period | Behavioural | Direct Default |
| Early Payment Default | Migration into default very early after origination | Behavioural | Early Payment Default |
| Past Due / In Arrears | A condition of delinquency | Behavioural | Past Due |
| Problem Loan / Substandard / Doubtful | Internal classifications terms capturing loans that are not "Performing" according to internal criteria | Operational | Non-Performing Loan |
| Under-Performing Loan | A credit asset that has deteriorated significantly in credit quality since origination, but does not have objective evidence of credit loss | Operational | Under-Performing Loan |
| Good/Bad | Informal term classifying relationships in the context of credit risk analysis / modelling | Operational | Good-Bad Analysis |
| Bad Debt | Informal term denoting debt that is not collectible and needs to be written off | Operational | Non-Performing Loan |
| Specific Provisions (SP) | Funds set aside to cover specific anticipated loss and treated as supplementary capital | Regulatory | Specific Provisions |
| General Provisions (GP) | Funds set aside to cover general non-identified loss and treated as supplementary capital | Regulatory | General Provisions |
| Defaulted Asset | 90 DPD and/or Unlikely to Pay | Regulatory | Non-Performing Exposure |
| Denounced Loan | A loan where a termination notice has been served | Operational | Denounced Loan |
| Non-Performing Loan | A condition of delinquency | Behavioural | Non-Performing Loan |
| Non-Performing Exposure | A condition of delinquency | Behavioural | Non-Performing Exposure |
| Non-Performing Asset | NPEs plus foreclosed assets | Behavioural | Non-Performing Asset |
| Non-Accural Loan | A loan that has stopped accruing interest in the accounting system | Accounting | Non-Accrual Loan |
| Troubled Debt Restructuring | A subset of forborne assets under US FASB accounting rules | Accounting | Troubled Debt Restructuring |
| Cure Rate | The fraction of Non-Performing Exposure that after Restructuring returns to Performing | Operational / Behavioural | Cure Rate |
| Re-Default Rate | The fraction of Non-Performing Exposure that after Restructuring returns to Performing but lapses again into
non-performing |
Operational / Behavioural | Cure Rate |
| Non-Accrual Loan | Accounting classification of non-performing loans, referring to the non-accretion of interest | Accounting | Non-Accrual Loan |
| Impaired Asset | Accounting classification of non-performing loans when there is an impairment allowance | Accounting | Provisioning |
| Provisioned Asset | Same as Impaired Asset | Accounting | Provisioning |
| Concession / Modification | A type of restructuring | Operational | Restructuring |
| Forbearance | A type of restructuring | Operational | Restructuring |
| Restructuring | The ad-hoc modification of original contractual agreements between borrower and lender | Operational | Restructuring |
| Write-off | The balance sheet adjustment of outstanding loan amounts following provisioning | Accounting | Provisioning |
| Foreclosure | Legal activity linked to attempting to recover non-performing exposures via collateral | Legal | Foreclosure |
| Foreclosed Asset | An asset that has been obtained through foreclosure | Operational | Foreclosed Asset |
| Foreclosure / Recovery/ Repossession / Liquidation | Activities linked to attempting to recover non-performing exposures via collateral | Operational | Non-Performing Exposure |
| Bankruptcy / Insolvency | The legal status of a borrower that seeks protection from creditors under applicable law | Legal | Bankruptcy |
