These losses directly impact the income  BIS central bankers’ speeches  3  statement of the bank and constrain further bank lending, thus exacerbating the procyclicality. This cycle-neutral approach to provisioning failed to account for the excessive deterioration in loan portfolio associated with excessive credit growth.
There is broad international agreement on the need to have provisioning based instead on an “expected loss” basis where life time losses are recognised early, i.e. provisions are increased in good times for the possibility that the environment may deteriorate in future.