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