Loan Loss Provision

Loan Loss Provision

A non-cash expense for banks to account for future losses on loan defaults. Banks assume that a certain percentage of loans will default or become slow-paying. Banks enter a percentage as an expense when calculating their pre-tax incomes. This guarantees a bank's solvency and capitalization if and when the defaults occur. The loan loss provision allocated each year increases with the riskiness of the loans a given bank makes. A bank making a small number of risky loans will have a low loan loss provision compared to a bank taking higher risks.
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We were, however, disappointed in the elevated loan loss provision required by borrower-specific deterioration in two commercial credits." Martin continued, "Industry net interest margins remain under pressure, but we did see some relief in deposit costs as the quarter progressed.
"Interest income on customer loans and advances declined by two per cent to Sh9.9 billion due to lower average balances coupled with re-pricing in line with the reduction of the Central Bank Rate while interest income from government securities increased by 15 per cent."The fall in loan loss provision continues to provide the base for banks' increasing their profits in the nine month period, with fellow top tier lenders KCB, Cooperative Bank, DTB and Equity Bank all making significant reductions in their loan loss provisions even as the stock of bad loans goes up.
The higher net income during the third quarter of 2018 compared to the third quarter of 2017 primarily resulted from an increase of $700 thousand in loan loss provision recapture, receipt of a grant for $233 thousand from the U.S.
UBI, which made a loan loss provision of Rs20.08 billion in the January-March 2016 quarter, is the only public sector bank that did not run into red although it posted a 78.34 per cent fall in net profit in the quarter.
Several authors who have studied earnings management in banking have found empirical support for the claim that banks use the loan loss provision for earnings management (Anandarajan, Hasan, & Vivas, 2003; El Sood, 2012).
The results were driven by strong core business performance, effective balance sheet management and reduction in loan loss provision. The loan loss provision was Dh62.5 million compared to Dh97.2 million in the corresponding period of 2010, the bank said.
The loan loss provision fund (stock) has evolved accordingly (figure 6).
We describe the basic accounting aspects of the Romanian methodology for loan loss provision determining.
Extrapolating the net loan loss provision cushions that have been built-up over the past six months (EUR 6.3 bln), it would take banks close to five years to fully provision Moody's estimation of losses.
He said the earnings decline came primarily from the companys loan loss provision of $1 3 million
Part of the loan loss provision will cover an expected increase in write-offs, Centennial said.
According to online magazine, Caixin, seven listed Chinese banks may have received permission to lower their loan loss provision coverage ratios.