please click on the link below to read an article published in the Globe and Mail quoting Anthony Scilipoti on why problem loans could blindside investors in Canada’s big banks (The same analogy would apply to other countries also).
“The problem with provisions is they’re backward-looking,” says Anthony Scilipoti, President ofVeritas Investment Research. […] Veritas calculates that provisions, as a percentage of loans, are now at a post-financial-crisis low point, and at a level about half their historical norms. […] “Earnings have benefited thus far because of the reduced provision, because you take less charges to income, and it makes income higher,” Mr. Scilipoti says. “As things turn, and some loans may become impaired, provisions go up, and income goes down.”