Definition:

Gross Loans refer to the total amount of loans that a financial institution has issued to borrowers before any deductions for provisions or allowances for potential loan losses. It represents the aggregate value of all outstanding loans on the institution's balance sheet.

Examples

1. A bank has issued $500 million in various types of loans, including personal, mortgage, and business loans. This total amount is considered the bank's gross loans.
2. A credit union reports $200 million in gross loans, which includes auto loans, student loans, and home equity loans.

Formula:

Gross Loans = Total Outstanding Loan Amounts

How to use the metric:

Gross Loans are used by financial analysts and investors to assess the lending activity and growth of a financial institution. It provides insight into the institution's market reach and potential revenue from interest income. Comparing gross loans over different periods can indicate trends in lending practices and economic conditions.

Limitations:

Gross Loans do not account for the quality of the loans or the risk of default. They do not reflect the net value of loans after accounting for potential losses, which can be significant in times of economic downturn or poor lending practices.

Applies to:

Gross Loans are most relevant in the banking and financial services industries, where lending is a primary business activity. It is also applicable to credit unions, mortgage companies, and other financial institutions that issue loans.

Doesn't apply to:

Industries that do not engage in lending activities, such as manufacturing, retail, or technology, do not typically use gross loans as a metric. For these industries, other financial metrics like revenue, profit margins, or asset turnover are more relevant.

Summary:

Gross Loans represent the total value of loans issued by a financial institution before any deductions for potential losses. This metric is crucial for understanding the scale of a lender's operations and potential income from interest. However, it does not provide insights into loan quality or risk, making it necessary to consider alongside other financial metrics. Gross Loans are primarily used in the banking and financial services sectors.