To put it simply, loan impairment reserve is a reserve drawn by commercial banks to make up for the loan losses that banks cannot recover at maturity, and it is also a bad debt reserve that banks cannot recover after lending to customers.

For example, a bank lent a customer 30 million yuan, and after the customer got the money, he could not repay it on time due to environmental changes or poor management. At this time, the bank will make provision for loan impairment according to the difference between the estimated recoverable amount and the original loan amount.

Significance of loan impairment reserve: 1. Meet the policy requirements: this part of assets will still be owned by banks, rather than commercial banks will actually lose the property rights of this part of assets. 2. Adjusting profits: In order to meet the performance requirements of the head office, a few banks increase operating expenses by increasing loan loss reserves, thus adjusting profits. In fact, it "hides" the operating profit of the bank and has no influence on the real profit of the bank's operation.