Allowance for Loan and Lease Losses

Allowance for Loan and Lease Losses

Banking professional Levon Mathews’ experience includes service as chief executive officer and president of First Federal of Port Angeles in Washington. As CEO of the bank, Levon Mathews partnered with outside parties to create an Allowance for Loan and Lease Losses (ALLL) policy that reflected a new business model.

Allowance for Loan and Lease Losses

ALLLs indicate the predicted credit losses of a bank's collection of loans and leases. Many financial institutions incorporate ALLLs into their credit risks. These entities have to take into account the possibility that some clients will be unable to meet their monetary obligations. While the bank will have to absorb these losses , they can better prepare themselves for such scenarios by setting aside money specifically for these circumstances.

Allowance for Loan and Lease Losses

A bank determines this figure by evaluating the loans it is not likely to recover. This may occur due to a customer defaulting on a loan, a customer needing to renegotiate a loan, or historical factors. On the balance sheet, this amount is presented as a contra-asset subtracted from the overall total of the loan portfolio.