CSIMarket


Terms Beginning with A
       
       
 

Allowance For Credit Losses

Financial Term


Allowance for credit losses is a financial term used in the accounting context to refer to the amount of money that a company sets aside in its financial statements to cover the potential losses on loans that may not be repaid by its customers. It is an estimate of the amount of money that a company expects to lose on its credit portfolio over a given period of time, typically one year.

The concept of allowance for credit losses is used in the financial industry to manage credit risk by providing a cushion against potential losses on loans and other credit instruments. This cushion helps to ensure that the company remains financially stable, even in the event of significant non-performing loans, such as those arising from the default of a major borrower or a recession.

The allowance for credit losses calculation is based on the company's historical credit loss experience, trends in credit risk, and economic factors that may impact borrowers' ability to repay their loans. The company may use various quantitative models, statistical analysis, or expert judgment to estimate the allowance.

In the financial industry, the allowance for credit losses is an important component of a company's financial statements. It is typically disclosed in the notes to the financial statements and is closely monitored by regulators, investors, and analysts. A high allowance for credit losses may indicate that the company has significant exposure to credit risk, while a low allowance may indicate that the company is being overly optimistic about the credit quality of its portfolio.




   
     

Allowance For Credit Losses

Financial Term


Allowance for credit losses is a financial term used in the accounting context to refer to the amount of money that a company sets aside in its financial statements to cover the potential losses on loans that may not be repaid by its customers. It is an estimate of the amount of money that a company expects to lose on its credit portfolio over a given period of time, typically one year.

The concept of allowance for credit losses is used in the financial industry to manage credit risk by providing a cushion against potential losses on loans and other credit instruments. This cushion helps to ensure that the company remains financially stable, even in the event of significant non-performing loans, such as those arising from the default of a major borrower or a recession.

The allowance for credit losses calculation is based on the company's historical credit loss experience, trends in credit risk, and economic factors that may impact borrowers' ability to repay their loans. The company may use various quantitative models, statistical analysis, or expert judgment to estimate the allowance.

In the financial industry, the allowance for credit losses is an important component of a company's financial statements. It is typically disclosed in the notes to the financial statements and is closely monitored by regulators, investors, and analysts. A high allowance for credit losses may indicate that the company has significant exposure to credit risk, while a low allowance may indicate that the company is being overly optimistic about the credit quality of its portfolio.




Related Financial Terms


Help

About us

Advertise