A Comparison of Loan Loss Allowance Practices in Asia


Grace Li and Walter Yao

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June 29, 2009

The financial crisis has ignited worldwide debates about numerous policy issues in the financial services industry; among them is the treatment of loan loss allowance. Historically, the determination of loan loss allowance has been controversial at times because of its subjective nature and the need to balance the transparency emphasis of financial statements with the prudential focus of regulatory expectations. The ongoing challenge of balancing transparency and prudence has been amplified by the current global economic downturn. This Asia Focus report provides a brief background on loan loss allowance and the associated supervisory guidance in the United States and compares different applications of loan loss allowance regulatory and accounting standards in some Asian economies. The report also highlights proposed alternatives for reconciling the varying goals of loan loss allowance practices and provides a brief assessment of their potential impact on Asia.