A measure of credit quality (for a bank or financial institution) that constitutes the ratio of provisions recognized by a bank over a given period (usually, annualized) to the average size of the loan portfolio during the respective period, normally expressed in terms of basis points.

This measure of credit quality gives an indicator as to expected losses in the bank’s loan portfolio. Therefore, it expresses the cost of the risk taken up by a bank in connection with its core lending function.

Generally speaking, cost of risk (COR) represents the total expenses incurred by a bank or entity for managing its main types of risk in addition to any losses arising from the same.