Well run banks provide more against bad debts than regulators require and sometimes more than tax authorities accept. Nevertheless regulators and tax authorities affect the way banks generally recognise problem loans. Unfortunately they often put opposing pressures on the banks. Regulators should want banks to recognise, and disclose, doubtful loans. Tax authorities want to keep the amount deducted from taxable profits to a minimum. Banks could provide against loans which are unacceptable to the tax authorities, but in practice they rarely do.
KeywordsLarge Bank Small Bank Loan Portfolio External Auditor Taxable Profit
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