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Is Caisse Régionale de Crédit Agricole Mutuel du Languedoc (EPA:CRLA) Over-Exposed To Risk?

Petra Goodwin

As a small cap company operating in a heavily regulated financial services sector, an investment in Caisse Régionale de Crédit Agricole Mutuel du Languedoc (EPA:CRLA) has many factors to consider. One of the biggest risk it faces as a bank is bad loans, also known as credit risk. As a small bank, Caisse Régionale de Crédit Agricole Mutuel du Languedoc’s profits are directly affected by macroeconomic events as the ability for borrowers to repay their debt depends on the stability of their salary and interest rate levels. Bad debt is directly written off as an expense which impacts Caisse Régionale de Crédit Agricole Mutuel du Languedoc’s bottom line and shareholders’ value. Today we’re going to assess the level of bad debt and liabilities Caisse Régionale de Crédit Agricole Mutuel du Languedoc currently has in order to properly analyse the risk involved with investing in Caisse Régionale de Crédit Agricole Mutuel du Languedoc.

View our latest analysis for Caisse Régionale de Crédit Agricole Mutuel du Languedoc

ENXTPA:CRLA Historical Debt August 31st 18

Does Caisse Régionale de Crédit Agricole Mutuel du Languedoc Understand Its Own Risks?

The ability for Caisse Régionale de Crédit Agricole Mutuel du Languedoc to accurately forecast and provision for its bad loans shows it has a strong understanding of the level of risk it is taking on. If the bank provision covers more than 100% of what it actually writes off, then it is considered sensible and relatively accurate in its provisioning of bad debt. With a bad loan to bad debt ratio of 119.64%, the bank has cautiously over-provisioned by 19.64%, which illustrates a safe and prudent forecasting methodology, and its ability to anticipate the factors contributing to its bad loan levels.

How Much Risk Is Too Much?

If Caisse Régionale de Crédit Agricole Mutuel du Languedoc does not engage in overly risky lending practices, it is considered to be in good financial shape. Loans that cannot be recuperated by the bank, also known as bad loans, should typically form less than 3% of its total loans. Bad debt is written off as expenses when loans are not repaid which directly impacts Caisse Régionale de Crédit Agricole Mutuel du Languedoc’s bottom line. With a ratio of 2.71%, the bank faces an appropriate level of bad loan, indicating prudent management and an industry-average risk of default.

Is There Enough Safe Form Of Borrowing?

Handing Money Transparent

Caisse Régionale de Crédit Agricole Mutuel du Languedoc makes money by lending out its various forms of borrowings. Deposits from its customers tends to bear the lowest risk since the amount available and interest rate paid are less volatile. Generally, the higher level of deposits a bank retains, the less risky it is deemed to be. Caisse Régionale de Crédit Agricole Mutuel du Languedoc’s total deposit level of 32.0% 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.

Next Steps:

Today, we’ve only explored one aspect of Caisse Régionale de Crédit Agricole Mutuel du Languedoc. However, as a potential stock investment, there are many more fundamentals you need to consider. I’ve put together three relevant aspects you should further research:

  1. Future Outlook: What are well-informed industry analysts predicting for CRLA’s future growth? Take a look at our free research report of analyst consensus for CRLA’s outlook.
  2. Valuation: What is CRLA worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether CRLA is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.