The order of formation and use

Charges to provisions made by the established norms of deductions specified as a percentage of total estimated losses. Criteria for assessing the quality of assets, the size of contributions are determined by the central bank, depending on economic conditions and the situation in the country and may be revised over time. Procedure for the use of reserves is also subject to a central location. The advantage of redundancy for the bank is a quick recovery of financial losses incurred by the bank, and the disabled - to divert much of the financial resources to form a reserve and thus reduce the effectiveness of bank capital. The most common way to reduce external credit risk of commercial banks is the guarantee, warranty (guarantee), and insurance. Insurance is a transfer for a fee, in whole or in part at their own risk specialized organization. The economic essence of insurance is to create a backup (insurance) fund, the amount of deductions to which an individual entity that wants to minimize the negative aspects of risk is smaller than the expected damage and, consequently, the insurance money. A large part of the risk or all risk is transferred from the policyholder to the insurer. The main objects of the credit insurance in the bank's activities are subject collateral, the risks associated with bank loans issued (adopted) guarantees. Category: Management Operations Commercial Bank