banks play a crucial role in the economy, and one of their main challenges is managing non-performing loans (npls). when borrowers fail to repay their loans on time, banks must take action to minimize losses. first, they often try to negotiate with the borrower for a repayment plan that works better for both parties. this could involve extending the loan term or reducing interest rates 📉.

if negotiation fails, banks may resort to legal actions to recover the outstanding amount. this includes filing lawsuits against defaulting borrowers or seizing collateral assets to cover the debt 💼. in some cases, banks sell these npls to specialized agencies or investors at a discount, which helps them quickly recover part of the money owed.

another strategy is restructuring the loan portfolio by selling off underperforming loans to other financial institutions. this approach allows banks to focus on core business activities while transferring risk elsewhere. lastly, banks continuously improve their credit assessment processes to prevent future npls from arising. strong due diligence and monitoring systems can significantly reduce the likelihood of loans turning bad 📈. by employing these methods, banks ensure financial stability and maintain trust within the market.