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Why Do We Need A Provisioning Policy?
A Provisioning Policy is needed to determine what is done in a variety of situations to mitigate the risks of and prevent loan loss.
Loan loss provision is an expense set aside as an allowance for uncollected loans and loan payments. This provision is used to cover a number of factors associated with potential loan losses including bad loans, customer defaults and renegotiated terms of a loan that incur lower than previously estimated payments. Loan loss provisions are an adjustment to loan loss reserves and can also be known as valuation allowances.
Monitoring and managing delinquent accounts requires careful thought, and this template policy shows you some options and presents an overall generic policy.
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