Loan Loss Provision

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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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Loan loss provisions of USD 1.1 million for the six months ending June 30, 2019 decreased 47% from the six months ending June 30, 2018.
"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.
In addition, results for the second quarter of 2017 included a favorable adjustment to earnings from the reversal of a liability of $700 thousand for deferred compensation, as well as recaptures of $300 thousand in loan loss provisions.
Dubai: The Gulf Cooperation Council banks achieved a 6 per cent profit growth in 2017 despite a 2 per cent decline in revenue growth, signalling gains in cost management and lower loan loss provisions, according to BCG's GCC Banking Performance Index, an annual study on the region's banking sector performance.
2,416 crore in the third quarter of the current fiscal, attributed to lower trading income on account of hardening of bond yields, higher corporate slippages leading to higher loan loss provisions and significant investment depreciation hit.
Loan loss provisions were $1.8 billion for the three months ending Sept.
Although a sharp jump in loan loss provisions was a drag on UBI's fourth quarter bottom-line, it is the only bank among public sector units that had posted a profit in the quarter.
Other Operating Income was higher by circa Dh16 million, primarily on account of robust recoveries in the commercial lending portfolio against which loan loss provisions were held.
(2012) carried out the following tests in the German banking market: (i) assessed whether banks avoid a decrease in net income (excluding loan loss provisions) in relation to the previous period, thus seeking to achieve lower outcome variability; and (ii) assessed whether banks seek to avoid a decrease in net income (excluding loan loss provisions) in relation to its peer group.
This was due above all to the improved revenues before loan loss provisions (plus 5% or plus EUR 125 million to EUR 2.4 billion) and the much lower loan loss provisions (minus 31% or minus EUR 151 million to EUR 341 million).
Iain Coke, Head of ICAEW's Financial Services Faculty, said: "We expect the new model will increase the loan loss provisions on banks' balance sheets by about 50 per cent on average, although this will vary substantially between institutions.
Loan loss provisions are expenses set by banks to cover estimated losses on loans due to defaults and nonpayment.