In This Article:
As a small cap company operating in a heavily regulated financial services sector, an investment in Caisse régionale de Crédit Agricole Mutuel Atlantique Vendée (ENXTPA:CRAV) has many factors to consider. One of the biggest risk it faces as a bank is bad loans, also known as credit risk. As a small bank, Caisse régionale de Crédit Agricole Mutuel Atlantique Vendée’s profits are directly affected by macroeconomic events as the ability for borrowers to repay their debt depends on the stability of their salary and interest rate levels. Bad debt is directly written off as an expense which impacts Caisse régionale de Crédit Agricole Mutuel Atlantique Vendée’s bottom line and shareholders’ value. Today we’re going to assess the level of bad debt and liabilities Caisse régionale de Crédit Agricole Mutuel Atlantique Vendée currently has in order to properly analyse the risk involved with investing in Caisse régionale de Crédit Agricole Mutuel Atlantique Vendée. View our latest analysis for Caisse régionale de Crédit Agricole Mutuel Atlantique Vendée
How Good Is Caisse régionale de Crédit Agricole Mutuel Atlantique Vendée At Forecasting Its Risks?
Caisse régionale de Crédit Agricole Mutuel Atlantique Vendée’s understanding of its risk level can be estimated by its ability to forecast and provision for its bad loans. If it writes off more than 100% of the bad debt it provisioned for, then it has inadequately estimated the factors that may have added to a higher bad loan level which begs the question – does Caisse régionale de Crédit Agricole Mutuel Atlantique Vendée understand its own risk? With a bad loan to bad debt ratio of 88.7%, Caisse régionale de Crédit Agricole Mutuel Atlantique Vendée has under-provisioned by -11.3% which is below the sensible margin of error, illustrating room for improvement in the bank’s forecasting methodology.
What Is An Appropriate Level Of Risk?
By nature, Caisse régionale de Crédit Agricole Mutuel Atlantique Vendée is exposed to risky assets by lending to borrowers who may not be able to repay their loans. Total loans should generally be made up of less than 3% of loans that are considered unrecoverable, also known as bad debt. Bad debt is written off when loans are not repaid. This is classified as an expense which directly impacts Caisse régionale de Crédit Agricole Mutuel Atlantique Vendée’s bottom line. With a ratio of 2.07%, the bank faces an appropriate level of bad loan, indicating prudent management and an industry-average risk of default.