What Is a Loan Loss Reserve?

Loan loss reserves are reserved for bad debts (customers default, need to renegotiate loan terms, etc.).

Loan loss reserve

Special reserves should be made for each loan based on the borrower's ability to repay,

It means that, based on the total amount of credit at a certain point in time,

The effect of the credit reserve policy combined with the incremental reserve policy will be better. Specific operations: First, set a benchmark annual credit growth

The effect of the credit reserve policy combined with the incremental reserve policy will be better. Specific operations: First, set a benchmark annual credit growth rate, such as 16%, and then increase a certain percentage of all total credit (smaller, such as 0.5%) basic reserve ratio; if the credit growth rate of a financial institution exceeds the growth rate specified by the central bank, the basic reserve ratio is increased by a percentage. 0.1%), of course, it can be high or low depending on the situation.

The incremental credit reserve policy means that, based on the total amount of credit at a certain point in time, all new loans from commercial banks thereafter pay a certain percentage of reserves to the central bank. As stipulated, based on the total credit of each financial institution on January 1, 2005, all excess loans will be paid from 0 to 100% of the loan reserve. This ratio can be adjusted according to the situation. Different credit reserve ratios are implemented for different types of credit of commercial banks, and the central bank can selectively control the flow of credit to commercial banks. The base can also be adjusted.