======Gross Loans======
Gross Loans is the total sum of all outstanding loans a [[Lender]], such as a bank or credit union, has on its books at a specific point in time. Think of it as the "sticker price" of the bank's entire [[Loan Portfolio]]. This figure is reported on the [[Balance Sheet]] and represents the principal amount owed by borrowers //before// any deductions are made for loans that might go bad. It's the grand total, the raw number, reflecting the full extent of the lender's lending activity. This number is the primary driver of a bank's core business, as it's the base upon which [[Interest Income]] is generated. However, it presents an overly optimistic picture because, in the real world, not every single loan will be paid back in full.
===== The Big Picture: Why Gross Loans Matter =====
At its core, Gross Loans tells you about the size and growth of a lender's primary business. If a bank's Gross Loans are consistently increasing, it generally means it's successfully issuing more loans and expanding its operations. It's the top-line figure for the assets that are supposed to make money for the company. However, for an investor, this number is only the first chapter of a much more interesting story.
==== Gross vs. Net: The Story of Prudence ====
The difference between Gross Loans and [[Net Loans]] is a critical concept that reveals a bank's management's foresight and honesty. The gap between these two figures is the [[Allowance for Loan Losses]] (sometimes called the [[Loan Loss Provision]]).
  * **Gross Loans:** The total face value of all loans.
  * **Allowance for Loan Losses:** An estimated amount set aside by the bank to cover future bad loans. It's an expense that reduces current [[Earnings]].
  * **Net Loans:** The amount the bank realistically expects to collect.
The formula is simple: **Gross Loans - Allowance for Loan Losses = Net Loans**.
Imagine you're a farmer who has harvested 1,000 apples (Gross Loans). You know from experience that about 50 apples will probably rot before you can sell them, so you set them aside mentally (the Allowance). The 950 apples you realistically expect to sell represent your Net Loans. A prudent farmer sets aside a reasonable allowance, while a reckless one might pretend all 1,000 apples are perfect until they start to smell.
===== A Value Investor's Perspective =====
A smart investor never takes Gross Loans at face value. Aggressively growing Gross Loans can be a major red flag. It might mean the bank is lowering its lending standards and taking on excessive [[Credit Risk]] just to show growth. The real investigative work begins //after// you see the Gross Loans figure.
==== Looking Under the Hood ====
To assess the true health of a loan portfolio, you need to analyze its quality. Here's what to look for:
  * **The Allowance Ratio:** How big is the [[Allowance for Loan Losses]] as a percentage of Gross Loans? A tiny ratio might suggest management is being overly optimistic about its borrowers' ability to repay. A sudden, sharp increase in the allowance can signal that the bank foresees trouble on the horizon.
  * **The NPL Ratio:** Look at the ratio of [[Non-Performing Loans (NPLs)]] to total Gross Loans. NPLs are loans where the borrower has fallen significantly behind on payments. A rising NPL ratio is a clear warning that the quality of the loan book is deteriorating.
  * **Charge-offs:** A [[Charge-off]] is the final step when a bank gives up hope of collecting a loan and writes it off completely. High levels of charge-offs are the ultimate proof of poor lending decisions made in the past.
===== Practical Takeaway =====
Gross Loans is a measure of a bank's **scale**. It tells you how big the lending operation is. But it tells you nothing about its **health**. To understand the risk and potential profitability, you must compare Gross Loans to Net Loans and dig into the quality of the underlying assets. For a value investor, a bank that grows its loan book cautiously and provides for losses prudently is far more attractive than one that chases reckless growth for the sake of impressive-looking Gross Loans figures. Always remember: it's not about how much you lend, but how much you get back.