The capitalization of unpaid interest on non-performing loans (NPLs) remains a contentious practice in global banking, particularly in emerging economies where debtor vulnerability intersects with creditor recovery objectives. While international financial governance increasingly emphasizes debt sustainability, proportionality, and consumer protection, Indonesian regulatory practice continues to permit relatively unrestricted post-default interest capitalization under fragmented legal frameworks. This article examines the normative and operational gap between emerging international law standards and Indonesian national regulation governing interest capitalization on NPLs. Employing a doctrinal and comparative methodology, the study analyzes soft law instruments, prudential banking standards, and consumer protection guidelines at the international level, juxtaposing them against Indonesian civil law, banking legislation, and Otoritas Jasa Keuangan (OJK) regulations. The findings reveal a structural misalignment: international norms increasingly restrict abusive compounding, mandate transparent workout mechanisms, and prioritize financial rehabilitation, whereas Indonesian law lacks explicit caps on post-default capitalization, relies heavily on contractual freedom, and exhibits enforcement gaps in debtor protection. The article concludes with recommendations for regulatory harmonization, including the adoption of proportionality caps, standardized NPL restructuring frameworks, and alignment with international debt sustainability principles to enhance financial stability and equitable credit markets.