Specific introduction of expected credit loss
In fact, ordinary people do not expect credit loss when borrowing money. Only in the case of large loans will enterprises use the calculation formula of expected credit loss. Credit loss refers to the difference between all contracted cash flows and all expected cash flows discounted by the enterprise according to the original real interest rate, that is, the present value of all cash shortages. Among them, the financial assets purchased by an enterprise or derived from which credit impairment has occurred shall be discounted according to the actual interest rate of the financial assets after credit adjustment. Therefore, many enterprises not only have loans, but also pay credit losses, which also increases the operating burden of enterprises. But if you don't lend, you won't have the funds to expand the scale.
Necessity of Anticipated Credit Loss
In fact, the existence of expected credit loss is very important. Without this expected credit, many people who lose money will not lend money to enterprises. Because if the enterprise is unable to repay the loan, it can apply for bankruptcy liquidation, so the borrowed money will go to Shui Piao. With this expected credit loss, enterprises must pay part of the expenses first, which reduces the risk of borrowing money. Therefore, the expected credit loss system is also relatively good, and many enterprises are now implementing it.
Enterprises will also consider the expected credit loss when estimating cash flow. If the expected amount of credit loss is too large, the profit of the enterprise will also be affected. Therefore, when enterprises borrow money, they will consider the expected credit loss and minimize the amount of such loss as much as possible.