This paper explores the factors which eliminated the nonperforming loan (NPL) problem in Malaysia and Thailand following the 1997 Asian financial crisis. The number of NPL, which expanded in the aftermath of the crisis, has since declined in most South‐East Asian countries. Although previous studies have explored the causes of the increase in NPL numbers, few have analysed the factors that contributed to the reduction in their number in Asia. In Malaysia and Thailand, authorities put in place several measures to manage NPL. As a vehicle to acquire NPL from banks, Malaysia established the Pengurusan Danaharta Nasional Berhad (Danaharta) in 1998, while Thailand established the Thai Asset Management Corporation (TAMC) in 2001. We analyse whether the characteristic features of banks, improvements in macroeconomic conditions, and facilities for purchasing loans caused a reduction in the number of NPL in Malaysia and Thailand. The results suggest that selling loans to a public asset management company was effective in reducing the number of NPL in Thailand. While macroeconomic conditions influenced the decline in NPL ratios in Thailand, in Malaysia, well performing commercial banks and large commercial and investment banks generally had smaller NPL ratios throughout and following the crisis.