CREDIT LOSS Meaning and
Definition
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Credit loss refers to a financial loss incurred by a lender or creditor when a borrower or debtor fails to repay the borrowed amount or meet their financial obligations as agreed upon in a credit agreement. It is typically associated with financial institutions, such as banks, that provide loans or credit facilities to individuals, businesses, or other entities.
The occurrence of credit losses often arises due to a variety of factors, including borrower insolvency, default, bankruptcy, or inability to fulfill repayment obligations. These losses can have a detrimental impact on the profitability and stability of financial institutions, as well as on the overall economy.
Credit losses can take various forms, such as write-offs, where the outstanding loan amount is removed from the lender's balance sheet as a loss, or provisions, where a portion of the loan amount is set aside as an allowance to cover potential losses. The calculation and management of credit losses involve techniques like credit risk assessment, default probability estimation, and stress testing.
Financial institutions employ risk management strategies like diversification of loan portfolios, credit scoring models, collateral requirements, loan covenants, and insurance to mitigate credit loss exposure. The assessment and mitigation of credit losses are vital for maintaining the financial health and stability of lenders, minimizing potential negative impacts on shareholders, depositors, and other stakeholders, and sustaining the overall functioning of the credit market.
Common Misspellings for CREDIT LOSS
- xredit loss
- vredit loss
- fredit loss
- dredit loss
- ceedit loss
- cdedit loss
- cfedit loss
- ctedit loss
- c5edit loss
- c4edit loss
- crwdit loss
- crsdit loss
- crddit loss
- crrdit loss
- cr4dit loss
- cr3dit loss
- cresit loss
- crexit loss
- crecit loss
- crefit loss
Etymology of CREDIT LOSS
The word "credit" originated from the Latin word "creditum", which means "loan, thing entrusted to another". It is derived from the verb "credere", which means "to trust, believe". The term "loss" comes from the Old English word "los", which means "destruction, ruin, or loss". Hence, the etymology of the phrase "credit loss" denotes the financial loss incurred when a borrower fails to repay a loan or debt, resulting in a loss of trust or faith in the debtor's ability to fulfill payment obligations.
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