Regulatory and Tax Treatment of Loan Loss Provisions

June 1, 1996

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Format: Chicago

Claudia H Dziobek. Regulatory and Tax Treatment of Loan Loss Provisions, (USA: International Monetary Fund, 1996) accessed November 21, 2024

Summary

Provisioning for loan losses is a method for recognizing the reduction in the value of a hank’s loan portfolio. Provisions are an essential element of prudential risk management and capital adequacy measurement and an important market signal. Loan loss provisions constitute a normal operating expense and should be deducted from taxable income provided that banks adhere to consistent and strictly enforced provisioning procedures, and provided that these mirror loan default probabilities. The argument for harmonized regulatory and tax treatment of loan loss provisions can be based on the economic similarity between loan losses and depreciation of machines and equipment. Tax deductibility of loan loss provisions does not imply a tax deferral or a special subsidy for banks.

Subject: Banking, Distressed assets, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Income, Labor, Loan loss provisions, Loans, National accounts, Non-wage benefits

Keywords: Bank regulator, Central and Eastern Europe, Classified loan, Country loan, Distressed assets, Global, Income, Loan, Loan classification system, Loan contract, Loan loss provisions, Loan portfolio, Loan quality, Loan write-off, Loans, Loss allowance, Loss-making bank, Non-wage benefits, PDP, Performance mandate, Provision, Tax, Tax deductibility, Tax treatment, Valuation procedure

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Policy Discussion Paper No. 1996/006
Stock No:

PPIEA0061996
ISBN:

9781451972009
ISSN:

1564-5193

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