CAUSES OF PROBLEM LOANS IN BANKS

Problem loans, commonly referred to as non-performing loans (NPLs), are a significant challenge for banks and financial institutions. These loans occur when borrowers fail to make scheduled payments, leading to potential financial instability. Understanding the root causes of problem loans is crucial for developing effective risk management strategies. This article explores the various factors contributing to the emergence of problem loans, including external factors such as economic downturns, market conditions, and regulatory changes, as well as internal factors like poor credit assessment, inefficient loan monitoring, mismanagement, and concentration risk. Additionally, borrower-specific factors such as overleveraging, susceptibility to business cycles, and ethical conduct are examined. By recognizing these causes, banks can implement measures to mitigate risks and maintain financial stability.