Definition
Pre-Provision Operating Profit (PPOP)
Pre-Provision Operating Profit is a bank's operating profit before deducting provisions for bad loans and taxes, showing core earning power.
PPOP equals net interest income plus other income, minus operating expenses, before provisions and tax. It strips out the volatile provisioning line to reveal how much a bank earns from its core business in a period.
A strong PPOP gives a bank the cushion to absorb high credit cost in a bad year without slipping into losses. Indian analysts compare PPOP to provisions to judge how comfortably a bank can self-fund its asset-quality clean-up from operating earnings.
Related terms
- Credit CostCredit cost is the provisioning a bank or NBFC books for bad and doubtful loans during a period, usually expressed as a percentage of average advances.
- Cost-to-Income RatioThe cost-to-income ratio measures a bank's operating expenses as a percentage of its operating income, gauging operational efficiency.
- Other Income (Banking)Other income, or non-interest income, is the fee, commission, trading and miscellaneous income a bank earns beyond interest on loans.
- Net Interest Income (NII)Net Interest Income is the difference between the interest a bank earns on its assets and the interest it pays on its liabilities, the core of its operating revenue.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.