By Alvin Foo

Where do you see this?

In business news articles, analyst reports and financial statements of companies.

What does it mean?

A write-down is a reduction in the book value of a company's asset if it is overstated relative to current market prices.

It is an accounting treatment to reflect the lower value of the asset, which could have dropped due to fundamental changes in markets or technology. If the value of an asset that had been written down increases, a write-back could be done.

Why is it important?

It paints a more accurate picture of the asset's actual value, and gives a better representation of the company's financial position at the time.

Write-downs also enable investors to gauge if a company's assets are valued properly.

Having too many credit write-downs will impair a bank's capital and restrict lending, which will slow down economic growth.

The International Monetary Fund warned recently that while commercial banks are estimated to have already written down US$1.3 trillion (S$1.8 trillion) through the first half of this year, they could face another US$1.5 trillion of asset write-downs ahead.

So you want to use the term. Just say...

'This bank is building up its capital base in case there is a need for further write-downs of its assets.'

This article was first published in The Straits Times.