Question

NPLs in the European Union stood at about €1 trillion (or over 9 percent of the region’s GDP) in 2014, more than double the level in 2009. What are NPLs?

a. A bank’s good loans
b. A bank’s bad deposits
c. A bank’s derivative product
d. A bank’s bad loans

Answer 1

NPLs, or Non-Performing Loans, refer to bank loans that are not repaid as expected, impacting the bank's net worth. In 2014, the level in the European Union was over 9 percent of the region’s GDP, reflecting significant financial distress within the economy.

Step-by-step explanation:

NPLs in the European Union, which stood at about €1 trillion or over 9 percent of the region’s GDP in 2014, refer to Non-Performing Loans. These are loans on which the borrower is not making the required interest payments or repayment of the principal. A well-run bank anticipates that a small percent of loans will not be repaid, but during a recession or when there is a high number of loan defaults in an economic downturn, this can have severe consequences. Banks might see their net worth decline substantially if they are unable to recoup the expected amounts from loans, leading to a situation where their liabilities may exceed their assets.

So, in the context of the choices provided, NPLs would be most accurately described as 'd. A bank’s bad loans'. Such scenarios can have a deep impact on the financial sector and, in turn, on the European economy, as seen during the financial crises when NPLs spiked due to high levels of defaults.