Managing non-performing loans in the banking sector: Determinants, impacts, and innovative solutions: A systematic literature review

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Background Non-Performing Loans (NPLs) are a critical measure of financial health, affecting bank profitability, stability, and investor trust. This systematic review synthesizes existing research on the causes, effects, and innovative approaches to managing NPLs in the banking sector. Methods Following PRISMA guidelines, we conducted a thorough search of peer-reviewed journals, conference papers, and institutional reports published between 2014 and 2024. Databases such as Scopus, Web of Science, Google Scholar, and ResearchGate were used. Two reviewers independently screened titles, abstracts, and full texts for eligibility. Data were extracted and synthesized to identify trends and gaps in the literature. Results The review included 50 studies from various regions. Key drivers of NPLs included economic downturns, inflation, and poor credit risk management. NPLs negatively impacted bank profitability metrics such as Return on Assets (ROA) and Net Interest Margin (NIM). FinTech solutions, particularly AI-driven credit scoring, showed potential in reducing NPLs, though adoption barriers exist in underdeveloped regions. Conclusions The findings emphasize the need to combine traditional risk management practices with innovative financial technologies and policy reforms to strengthen banking sector resilience. Policymakers and financial institutions should focus on improving regulatory frameworks and investing in technological advancements to address NPL-related risks.

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