IMF research highlights benefits of dynamic loan-loss provisioning

International Monetary Fund headquarters

A working paper, published by the International Monetary Fund on May 1, highlights the benefits of a dynamic approach to loan-loss provisioning.

Authors Torsten Wezel, Jorge Chan-Lau and Francesco Columba write that taking a more dynamic approach to loan provisioning helps to smooth the costs of provisioning over the credit cycle and reduces the risk of a bank default.

The working paper says the most effective dynamic provisioning models it found allowed for banks to take a flexible approach

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