Risk ProvisionsRisk Provisions
The provision for credit losses is a means for financial institutions to account for expected losses from delinquent and bad debt. Based on historical statistics, a financial institution can make estimates regarding the amount of loans or other credit that is likely to become default and unsatisfied (default probability). If, for example, the company calculates that accounts over 90 days past due have a recovery rate of 40%, they can make a provision for credit losses based on 40% of the balance of these accounts.
Risk provisions can be annualized in many different forms and we will handle some with it’s own merit. Here is a short video to get you into any scenario.