Loan loss provisions are a standard accounting adjustment made to a bank’s loan loss reserves included in the financial statements of banks. Loan loss provisions are consistently made ;· To mitigate credit risk, in principle, banks will set aside a specific amount as a cushion to absorb expected loss on banks' loan portfolio and this amount is referred to as loan loss provisions (LLPs) or provisions for bad debts; therefore, loan loss provision estimate is a credit risk management tool used by banks to mitigate expected losses on bank loan loss provisioning system is a loan loss provisioning system where banks report higher LLPs during good times and report fewer LLPs during economic downturns so that the surplus LLPs accumulated during good economic times is used to mitigate bank losses during economic downturns (Saurina, 2009).Commercial bank managers need to estimate the losses that will inherent in a bank’s loan portfolio at a given moment of time and set aside as a loan loss provision for this likelihood in order to guarantee a bank’s solvency and capitalization if and when the loan defaults occur. The loan loss provision will be charged to the banks…Loan Loss Provision Definition - are provisions and non-performing loan (NPL) coverage?What are provisions and non-performing loan (NPL) coverage?Loan Loss Provisions (Meaning) - Calculate Loan Loss 27/05/2020 · A loan loss provision refers to funds set aside by a bank to cover bad loans – the ones that don’t get fully repaid because the customer defaults or those that provide less interest income because the borrower negotiated a lower rate. They’re a bank’s best estimate of what percentage of a loan may not get paid back.

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