Provisions for credit losses (PCLs). Not bad loans.
One is permanently impaired capital.
The other is a discretionary accounting technique that helps “manage” bank earnings / earnings expectations.
PCLs are a great way for the banks to influence outside forces by adjusting real profits to artificially show lower profits or even losses.
Say, if a government was considering…a windfall tax on excess profits…? Sure would be handy not to have them profits anymore.
How does this work exactly? The PCL is earmarked and effectively counts as bad debt?
Yeah, it’s a deferred accounting technique that’s similar to the idea behind accounts payable / receivable.
For revenue due in the future, you book in a “sale” to accounts receivable, and then record the profit when the sale is delivered (in full or proportionally). That future loan revenue is an asset held by the bank until its actually received from the client and converted to current cash flow.
PCLs are effectively an offset to accounts receivable. I think it’s technically a negative asset and not a liability, but that’s not important. If everything goes right with a loan, the bank receives interest payable and the original principal. That was all logged as an expected receivable by the bank. When the bank chooses to believe more people will have difficulty paying their loans back, the bank increases PCLs to reduce the “expectation of owed income”. The idea is that the PCL figure is supposed to both be a backward-looking indicator of good loan creation behaviour at the banks, and a forward-looking signal to government or shareholders about a pending problem that the bank has identified.
Usually what actually winds up happening is the banks create too-high PCLs, which then are reversed later, magically re-creating those assets & profits in a future reporting period.
So, while PCLs are an important part of IFRS accounting for the finance sector, they also introduce a LOT of ability for banking executives to “manage” their overall level of taxable earnings. For example, if you don’t want to show huge earnings at a particular calendar year-end because of a proposed windfall tax on the banking sector…
Thanks for the explanation! That sounds incredibly exploitable. At least A/R has to be tied to actual billings, rather than pulled out of thin air ex ante.
Weren’t these provisions required by the regulator?
while all three [banks] remain very profitable, they all showed a sharp uptick in the amount of money they’re setting aside to cover bad loans, a closely watched banking metric known as provisions for credit losses.
As mentioned in the other thread: banks are setting aside money for when borrowers start defaulting. It hasn’t started yet.
And the banks are posting healthy profits while laying people off.
Just because they make good profit doesn’t mean they should keep useless staff employed, they still have to adapt to a changing market where their clients go to a brick and mortar bank less often compared to what was the norm even just five years ago. That means either paying for unnecessary building maintenance and staff that isn’t very busy or just closing some branches and leaving ATMs available while redirecting clients to another branch for in person services.
And so it begins. If mortgage rates don’t drop within the next year or two before too many people’s renewals come up, it’s going to be a bloodbath. There are probably a lot of people with upside-down loans caused by inflated car prices too.
And so it begins. If mortgage rates don’t drop within the next year or two before too many people’s renewals come up, it’s going to be a bloodbath.
I’m pretty sure that’s what most banks are waiting for and have learnt to better exploit the housing sector thanks to the collapse back in ~2008 (where they suffered zero repercussions). And where they picked up billions in foreclosed homes thanks to the crash, all for pennies on the dollar.
I mean think about it, it’s these guys that artificially make the economy. Absolutely fucking wild the system is so broken and corrupt and everyone is just throwing up their hands like well that’s life hur dur.
Questioning the system means questioning the most sacred of cows. Until people are ready for that kind of discussion, it’s always going to be band-aid fixes.
What fixes tho? The banks are running wild and everyone is like “ya it’s needed to control inflation.”
You’re taking money from all the consumers to try and force business to control their prices? How does no one else think this entire system is absolutely insane?
This is the best summary I could come up with:
Three of Canada’s biggest lenders posted quarterly earnings on Thursday, and as was the case at Scotiabank earlier in the week, they’re all putting a lot more money aside to cover loans that might go bad.
Royal Bank, TD Bank and CIBC revealed their financial results to investors before stock markets opened on Thursday, and while all three remain very profitable, they all showed a sharp uptick in the amount of money they’re setting aside to cover bad loans, a closely watched banking metric known as provisions for credit losses.
Loan loss provisions at the first two were worse than analysts were expecting, but at CIBC they actually came in lower than some forecasts.
While the uptick in troubled loans is a concern, the figures are a drop in the bucket when viewed against the backdrop of the overall financial picture at all three lenders
TD did announce, however, that it is taking a $363-million restructuring charge during the quarter, relating to severance and other costs.
The bank said in filings it plans to cut its its current full-time work force by about three per cent.
The original article contains 392 words, the summary contains 184 words. Saved 53%. I’m a bot and I’m open source!
Bad for THEM… Heh heh heh
