What is loan impairment reserve?
When banks lend money, they have to bear certain risks. In order to resist risks, banks need to make provision for impairment of all assets that bear risks and losses, among which the provision for impairment of "loans and advances" is called loan impairment provision.
Loan impairment reserve refers to the reserve drawn by commercial banks to make up for the loan losses that cannot be recovered at maturity. In fact, it is an estimate of future bad debts, so as to draw reserves. The reserved reserves can be counted as operating expenses and included in the current cost.
If the loan impairment reserve is increased, it shows that the bank is fully prepared for future bad debts; If it is reduced, it shows that the bank has enough confidence in the future loan quality, so it has not reserved too much preparation.
Bank loan impairment reserve, non-performing loan balance and non-performing loan ratio should rise and fall together to ensure the ability to cope with risks. According to regulatory requirements, it is generally between 120%- 150%.
According to the regulations of China Banking Regulatory Commission, provision coverage ratio = loan impairment reserve/balance of non-performing loans.
Standard for provision for loan impairment
According to China's Guidelines for Bank Loan Loss Preparation:
1. Generally, it is prepared to be accrued quarterly, and the year-end balance is generally not less than 65438+ 0% of the year-end loan balance;
2. Pay attention to loans, subprime loans, doubtful loans and loss loans on a quarterly basis, with the proportions of 2%, 25%, 50% and 100% respectively. Among them, for the loss provision of subprime and doubtful loans, the accrual ratio can fluctuate by 20%;
3. The special provision shall be accrued on a quarterly basis, and the bank shall determine the provision ratio by itself according to the special risk status, risk loss probability and historical experience of different types of loans (such as countries and industries).
More recommendations: the difference between loan impairment reserve and loan impairment loss