Methods for determining the amount of Loan Loss Provisions[Metody stanovení výše rezerv pro úvěrové ztráty]

This paper deals with theme methods for determining the amount of Loan Loss Provisions (LLP). The most common methods for determining the amount of loan loss provisions used by credit institutions include Roll Rates and Markov's chains methods. This paper aims to show and explain the steps leading to the determining the amount of loss loan provisions for credit losses using mentioned methods and to define the causes of different levels of reserves for individual approaches. Roll Rates and Markov's chains approaches are subsequently tested on two real portfolios retail clients in two different countries. Empirical tests have demonstrated significant differences confirming the theoretical assumption of different levels of loan loss provisions using Roll Rates and Markov's chains approaches.