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What is Non-Performing Loan (NPL)?

A non-performing loan is one where scheduled repayments are overdue by enough to meet the classification threshold set in the applicable regulations, at which point the lender must classify it accordingly and make provision against it. For regulated SACCOs the classification bands and the provisioning required are set by the regulations and revised.

A real Kenyan example

A SACCO reporting its loan book separates performing loans from those classified as non-performing, and holds provisions against the latter, which reduces the surplus available for distribution.

Why it matters

The NPL ratio is one of the clearest signals of a SACCO's health, because unrecovered lending is member money. For an individual member it matters because default has consequences that extend to guarantors and to credit reporting.

FAQs

When does a loan become non-performing?
When arrears reach the threshold set in the applicable regulations. The specific periods and classification bands are set by regulation and revised, so confirm the current position with SASRA rather than relying on a stated number of days.
What happens to guarantors when a loan is non-performing?
The SACCO can look to the deposits the guarantors committed. The exact process and its sequence are set out in the loan and guarantee documents, which is why reading them before signing matters.
Why does the NPL ratio matter to members?
Loans are made with member money, so unrecovered lending reduces what is available to distribute and, at scale, threatens the institution. It is one of the more informative numbers in a SACCO's reported results.

Related terms

Guarantor (SACCO)Loan RestructuringCapital AdequacySASRA Returns

See all 72 terms