Our professional perspective

Hilary Achebe, Head, Treasury Operations at Babbangona Farmers Services Limited (2018-2019) Answered April 5, 2018, What benefits does a bank get by writing-off a loan?

Banks actually do not benefit from writing off a loan, in fact, its a loss to the business. Financial institutions suffer a loss every time they write off a bad loan. Banks are required to make certain provisions for every loan they give out and this provision increases as the status of the loan /facility becomes doubtful or eventually bad.

In writing off a loan the amount is expense from the books of the bank and this negatively affects the profitability of the organization. The main motive or benefit why banks write off bad loans is to show the true position of the performing facilities of the bank and this will help the financial institution to understand its current position and make correct strategic and operational decisions.

Writing off loans, in a nutshell, is done in other to reconcile the true position of the financial institution with its financial statement (Book position)