Definition
Provisioning Expense Ratio – Measures how much of a bank's loan book it's setting aside in a given period to cover expected credit losses, expressed as loan-loss provisioning expense over average loans. A falling cost of credit boosts net profit without any change in operating income, so it needs to be read alongside the trend in non-performing loans rather than taken as a sign the underlying lending business improved. Found In: Income Statement, Notes to Financial Statements (loan-loss provisioning) Formula:
Cost of Credit = Loan-Loss Provisioning Expense / Average Loans (annualized where quoted as an annual rate)