IMF Working Papers

Dynamic Loan Loss Provisioning: Simulationson Effectiveness and Guide to Implementation

By Torsten Wezel, Jorge A Chan-Lau, Francesco Columba

May 1, 2012

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Torsten Wezel, Jorge A Chan-Lau, and Francesco Columba. Dynamic Loan Loss Provisioning: Simulationson Effectiveness and Guide to Implementation, (USA: International Monetary Fund, 2012) accessed December 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This simulation-based paper investigates the impact of different methods of dynamic provisioning on bank soundness and shows that this increasingly popular macroprudential tool can smooth provisioning costs over the credit cycle and lower banks’ probability of default. In addition, the paper offers an in-depth guide to implementation that addresses pertinent issues related to data requirements, calibration and safeguards as well as accounting, disclosure and tax treatment. It also discusses the interaction of dynamic provisioning with other macroprudential instruments such as countercyclical capital.

Subject: Banking, Basel II, Countercyclical capital buffers, Credit, Credit cycles, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Loans, Money

Keywords: Basel II, Countercyclical capital buffers, Credit, Credit cycles, DP buffer, DP concept, DP fund, DP parameter, DP path, DP rate, DP system, DP system great care, Dynamic Provisioining, Global, Income statement, Latin America, Loan loss, Loan portfolio, Loans, Macroprudential Policy, Peruvian DP formula, Procyclicality, Profit and loss statement, Recording DP, WP

Publication Details

  • Pages:

    59

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2012/110

  • Stock No:

    WPIEA2012110

  • ISBN:

    9781475503319

  • ISSN:

    1018-5941

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