what is a nonperforming asset 
a nonperforming asset npa is a debt instrument where the borrower has not made any previously agreed upon interest and principal repayments to the designated lender for an extended period of time the nonperforming asset is therefore not yielding any income to the lender in the form of interest payments breaking down nonperforming assetfor example a mortgage in default would be considered nonperforming after a prolonged period of non payment the lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement if no assets were pledged the lender might write off the asset as a bad debt and then sell it at a discount to a collections agency banks usually categorize loans as nonperforming after 90 days of nonpayment of interest or principal which can occur during the term of the loan or for failure to pay principal due at maturity for example if a company with a 10 million loan with interest only payments of 50 000 per month fails to make a payment for three consecutive months the lender may be required to categorize the loan as nonperforming to meet regulatory requirements a loan can also be categorized as nonperforming if a company makes all interest payments but cannot repay the principal at maturity the effects of npascarrying nonperforming assets also referred to as nonperforming loans on the balance sheet places three distinct burdens on lenders the nonpayment of interest or principal reduces cash flow for the lender which can disrupt budgets and decrease earnings loan loss provisions which are set aside to cover potential losses reduce the capital available to provide subsequent loans once the actual losses from defaulted loans are determined they are written off against earnings recovering losseslenders generally have four options to recoup some or all of the losses resulting from nonperforming assets 