Q: hypothetical question on loss provisions: should these provisions that are set aside (or at least a portion of them) ultimately not be necessary in the future, does that mean there is a potential for them to be reflected as revenue on future earnings and thus, result in a seemingly excellent quarter, year, or whenever this situation could happen? How is viewed from an accounting perspective?
5i Research Answer:
Yes. Losses are an expense against earnings, but can be reversed if the banks overprovision and things go better than expected. This can result in better earnings, when it happens. But mostly, banks are conservative, and are more likely to use loss reversals to 'smooth out' results rather than show a spike in earnings all of a sudden.