Which will the banks prefer in their accounts?

oldwiring

This will likely be a short thread TBH, but I have been musing. Banks are reporting increased bad debts. I reckon that a number of those who are reclaiming charges may actually be in general financial difficulties ( OK my guess!) and will be potential bad debts. Now take a simple example. I A Mwing owes £5000 of which £1000 has arisen from charges. Now choose which the shareholders will accept more readily in their assessment of the bank

Refund £1000 and enter £4000 as a potential/ actual bad debt.

Enter £5000 as potential/ actual bad debt.

In either case the profits are affected by the same amount.

jonesMUFCforever

I slightly disagree.
When banks set aside a sum for bad debts they in effect get tax relief on that money.
If the rules were changed and banks were only allowed to put actual bad debts in the accounts then their reported profits would increase and so would their tax bills.
Refunds have to come out of 'real' money ie a direct cost on the business.

oldwiring

But what will the shareholders and the press be more aware of; what will be the headline grabber? I don't think corpaorate man think like mere mortals to be sure

Presentation has a graet part to play! I heard of a bank years back that decided to put an embargo on capitla spending , but the revenue budget was just trimmed. Result was thatbetter equipment could not be bought, but a similar amount was spent on keeping the old and inferior going. Depreciation profiles can be altered. How many read the notes to accounts?

jonesMUFCforever

I see your point of view BUT by putting in the accounts sums for bad debts in the way that they do they can't lose!
They get tax relief for these sums now which decreases their headline profit figures now to pay less Corporation tax.

oldwiring

ejones999 wrote:

I see your point of view BUT by putting in the accounts sums for bad debts in the way that they do they can't lose!
They get tax relief for these sums now which decreases their headline profit figures now to pay less Corporation tax.

Next big question is how long before someone posts a daitribe about the big bad banks?