A provision that is created for impairment losses arising from loans, receivables, and similar types of extended credit. Impairment losses reflect the expected or potential credit losses that may arise as to an entity’s financial assets due to deterioration in its ability to collect interest and redeem the face value of such assets at maturity date.

Provision for impairment losses is charged on such assets using historical data (management’s expertise over the time), personal judgment and statistical methods.

Impairment losses need to be recognized when there is objective evidence on the impairment as a consequence of an event or more events (loss event/s) that occurred after the initial recognition of the asset and such event affects the reliability of the estimated future cash flow of the financial asset or the group of financial assets.