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Definition of Non-Performing Financing (NPF), Formulas and Causes

Navigasi - Judging from the meaning of Non Performing Financing (NPF) is a financing risk. This risk arises if the bank does not get back the principal installments or the profits obtained from the financing or investment provided (Arifin, 2009: 263).

Definition of Non-Performing Financing (NPF), Formulas and Causes
Definition of Non-Performing Financing (NPF), Formulas and Causes


This risk in Islamic banks is called problematic financing. Non-performing financing is financing that is disbursed by banks but customers cannot make payments or make installments that are not in accordance with the agreement agreed upon by the bank and customer so that non-performing financing (NPF) in sharia banking will also affect the rise and fall of financing.

Non-performing financing is financing that is disbursed by the bank but the customer cannot make payments or make installments that are not in accordance with the agreement agreed upon by the bank and customer. (Ismail, 2013:87).

There are several definitions of non-performing financing, including:


Financing that has the possibility of risk arising in the future for the bank in a broad sense.

Experiencing difficulties in settling their obligations, both in the form of repayment of the principal and or payment of profit sharing as well as costs that are borne by the debtor.

Financing where repayment is in jeopardy, especially if the expected sources of repayment are estimated to be insufficient to repay the credit so that it has not reached/meet the target desired by the bank.

Financing where there is a default in repayment according to the agreement so that there are arrears, or there is a potential loss in the debtor's company so that it has the possibility of risk arising in the future for the bank in a broad sense.

Experiencing difficulties in settling their obligations to the bank, both in the form of payment of bank fees which are borne by the customer of the debtor concerned.

Financing for special attention groups, substandard, doubtful and loss as well as current groups that have the potential to be in arrears.

For banks, the earlier they consider the financing disbursed to be problematic, the better because it will have an earlier impact on the rescue effort so that it doesn't get worse which results in more difficult settlements.

The formula for calculating the ratio of Non Performing Financing (NPF) or financing risk is:

NPF Formula
NPF = Non-performing Financing : Total Financing x 100%


Causes of Non Performing Financing (NPF)


In the distribution of financing, the financing provided by the bank to the customer will not always run smoothly as expected in the financing agreement. External and internal environmental conditions can affect the smoothness of debtor obligations to banks so that the financing that has been channeled to customers has the potential or causes failure.

There are several factors that cause non-performing financing, including:

Internal factors, among others:


  • (a) Lack of good understanding of the customer's business;
  • (b) Lack of customer financial evaluation;
  • (c) Error setting financing facility;
  • (d) Calculation of working capital is not based on the customer's business;
  • (e) Overly optimistic sales projections;
  • (f) Sales projections do not take into account business habits and do not take into account competitors' aspects;
  • (g) The aspect of the guarantee is not taken into account the marketable aspect; (h) Weak supervision and monitoring;
  • (i) The occurrence of mental erosion, namely a condition that is influenced by reciprocity between customers and bank officials so that the process of providing financing is not based on sound banking practices.

External factors, including:


  • (a) The character of the customer is not trustworthy (dishonest in providing information and reports about its activities);
  • (b) Sidestreaming the use of funds;
  • (c) Inadequate customer management capability resulting in losing in business competition;
  • (d) The business being run is relatively new;
  • (e) The customer's line of business has been saturated;
  • (f) Unable to deal with problems/lack of business mastery;
  • (g) Death of a key person;
  • (h) Disputes among directors;
  • (i) A natural disaster occurs;
  • (j) The existence of government policies, namely regulations on a product or economic sector or industry can have a positive or negative impact on companies related to the industry. (Usanti and Somad, 2012: 102-103)
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