Bad Debt Reserve

DEFINITION of 'Bad Debt Reserve'

An account set aside by a company to account for and offset losses that arise as a result of defaults from futures loans. This figure may be calculated based on historical norms or other known information about the relative safety of the debt.

Also known as a "loss reserve".

BREAKING DOWN 'Bad Debt Reserve'

Bad debt reserves become alarming when they reach levels outside of historical norms or averages, either at the company level or the national level. For instance, there are many concerns today about China's high bad debt reserves at its banks, an aftereffect of many years of almost non-existent lending requirements.