A Loan Loss Provision is an accounting entry that banks and financial institutions set aside to cover potential losses from loans that may not be repaid. This provision acts as a financial buffer, helping institutions manage risks associated with lending. By estimating the amount of loans that might default, banks can maintain a healthier balance sheet and ensure they have enough capital to absorb potential losses. The provision is typically calculated based on historical data, current economic conditions, and the creditworthiness of borrowers. It is recorded as an expense on the income statement, reducing the bank's profits for that period. This practice is essential for maintaining financial stability and regulatory compliance in the banking sector.