A valuation allowance offset against total loans, which represents the amount considered by management to be adequate to absorb estimated losses inherent in the loan portfolio.
An item on a bank’s balance sheet that shows the amount of funds the bank has set aside to absorb future loan losses expected from its existing loan portfolio. As the bank experiences actual loan charge-offs, these charge-offs reduce the bank’s allowance. Funds used to increase the Allowance are shown on a bank’s profit and loss statement as the provision for loan losses. See also Provision for Loan Losses.
Balance sheet provision held against the total of non-performing loans. The allowance is increased by the annual provisions and decreased by write-downs (net of recoveries) on non-performing loans.