loan loss reserve

Definition

The portion of a bank's cash or cash equivalents holdings set aside to cover estimated potential losses in its loan portfolio. When loans are repaid, this reserve shrinks accordingly, and when loans are made, it increases. In the event of defaulted loans, repossessed collateral is liquidated and credited to the loan loss reserve.

Use loan loss reserve in a sentence

I wondered what the loan loss reserve was and how things would effect it and how everything would go together.

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Because Tommy was unable to repay his loan to the bank; the bank had to use its loan loss reserve to cover the unpaid portion of the initial loan.

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loan loss reserve The portion of a bank's cash or cash equivalents holdings set aside to cover estimated potential losses in its loan portfolio. When loans are repaid, this reserve shrinks accordingly, and when loans are made, it increases. In the event of defaulted loans, repossessed collateral is liquidated and credited to the loan loss reserve.

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