non performing asset
Non Performing Asset is a loan a bank gave out that has stopped earning it money because the borrower has not paid interest or principal for a long stretch.
In plain English
Uncle Femi's shop on the ground floor of the plaza has been shut for three months now. The landlord still walks past it every morning, still owns it on paper, but it brings him nothing. He cannot rent it out, he cannot sell it easily, and the loan he took to stock it in the first place is now the one causing him sleepless nights.
A bank sees its loans the same way. When a business or a person borrows money and stops paying back the interest or the principal for ninety days or more, the bank cannot pretend that loan is still working for it. It sits on the books as an asset, technically the bank is still owed the money, but it is bringing in nothing. That is a non performing asset, or NPA for short.
Nigerian banks talk about this a lot because it shapes how comfortable they feel lending. A bank in Lagos that gave out a large loan to an oil marketing company, and the company later could not repay because fuel prices crashed, ends up carrying that loan as a non performing asset. The bank has to set aside extra money, called provisioning, to cover the possible loss, and that eats into its profit.
In the United Kingdom, banks watched this closely after the 2008 crisis, when mortgages given to people who could not really afford them turned bad in large numbers. The lesson travelled everywhere, including to Nigeria, where the Central Bank now pushes banks to keep their non performing loans below a set percentage of their total lending.
For the ordinary person, this matters more than it seems. When banks carry too many non performing assets, they become stingy with new loans, they raise interest rates to protect themselves, and even good borrowers find it harder to get credit. A relative sending money home to help a small business avoid default is, in a small way, helping keep one more loan from becoming non performing.
A bank lends a transport company ₦20,000,000 to buy buses. After eight months, the company has not paid interest for over ninety days because fuel costs rose sharply. The bank now classifies that ₦20,000,000 loan as a non performing asset and sets aside part of it as a provision, reducing the profit it reports that year.
Questions people ask
Why is a loan called an asset if the borrower is not paying?
Because on paper the bank is still legally owed that money, so it stays listed as something the bank owns. The problem is that it has stopped generating income, which is the whole point of a loan for a bank.
How does a non performing asset affect ordinary bank customers?
Banks with many non performing assets tend to tighten lending, raise interest rates, and ask for stronger collateral, so even reliable customers feel the ripple effect when applying for loans.
Can a non performing asset ever become good again?
Yes. If the borrower restructures the loan, catches up on payments, or the collateral is sold to recover the money, the loan can be reclassified as performing or written off cleanly.
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