Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire SA (EPA:CRLO) is a small cap stock with a market capitalisation of €713.2m. As a company operating in the financial services sector, it faces the risk of bad loans, also formally known as credit risk. The ability for borrowers to repay their loans depends on the stability of their salary and interest rate levels which is impacted by macroeconomic events and in turn impacts the profitability of small banks. This is because bad debt is written off as an expense and impacts Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire’s bottom line and shareholders’ value. Today we’re going to assess the level of bad debt and liabilities Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire currently has in order to properly analyse the risk involved with investing in Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire.
View our latest analysis for Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire
Does Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire Understand Its Own Risks?
The ability for Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire to forecast and provision for its bad loans accurately serves as an indication for the bank’s understanding of its own level of risk. 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 Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire understand its own risk? Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire’s low bad loan to bad debt ratio of 97.49% means the bank has under-provisioned by -2.51%, indicating either an unexpected one-off occurence with defaults or poor bad debt provisioning.
How Much Risk Is Too Much?
If Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire does not engage in overly risky lending practices, it is considered to be in good financial shape. Total loans should generally be made up of less than 3% of loans that are considered unrecoverable, also known as bad debt. When these loans are not repaid, they are written off as expenses which comes out directly from Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire’s profit. With a ratio of 2.8%, the bank faces an appropriate level of bad loan, indicating prudent management and an industry-average risk of default.
How Big Is Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire’s Safety Net?
Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire borrows money in many different forms to lend back out. Deposits from its customers tends to bear the lowest risk because they are less volatile in terms of amount available and interest rate paid. The general rule is the higher level of deposits a bank holds, the less risky it is considered to be. Caisse Regionale de Credit Agricole Mutuel de la Loire-Haute-Loire’s total deposit level of 36.1% of its total liabilities is below the sensible margin for for financial institutions which generally has a ratio of 50%. This means the bank’s safer form of borrowing makes up less than half of its liabilities, indicating riskier operational activity.