The bank's balance sheet as one of the basic financial statements and indicators of the bank's profitability consists of two key parts: the bank's assets and liabilities. Over 60% of the total assets of Croatian banks are loans, and they are the most important banking product in the world and in the Republic of Croatia in terms of their volume and contribution to profitability. In accordance with its importance and significance, this thesis aims to show the classification and quality of banks' loan portfolio and how banks manage non-performing loans. The main factors for a realistic assessment of the quality of assets and the banking sector as a whole, and thus of overall financial stability, are: understanding the economic role of credit, understanding banking operations and evaluating the quality of the loan portfolio. The issued regulations on credit risk management and control, criteria for classifying exposures into risk groups as well as indicators in identifying bad placements with the aim of quality monitoring and effective regulation and functioning of the banking market as a whole have a significant impact on the quality of the loan portfolio. The issued regulations on credit risk management and control, criteria for classifying exposures into risk groups as well as indicators in identifying bad placements with the aim of quality monitoring and effective regulation and functioning of the banking market as a whole have a significant impact on the quality of the loan portfolio. Also, the role of credit rating agencies in measuring credit risk is important for providing additional information to banks to assess the risk of default. The activities of banks in resolving non-performing loans, which are achieved through adequate credit risk management as well as through the sale of receivables to companies specializing in the collection and management of receivables, are also crucial for improving the quality of Croatian banks' assets. High liquidity and capitalization of the system ensure safe and stable operations of banks in the Republic of Croatia, providing a sound basis for banks' lending activity to the real sector, as an important driver of economic growth and development.