Credit Evaluation School Instructor eBook - Oct 2023

Internal Use Only

LOAN CLASSIFICATION DEFINITIONS Substandard Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

• This is the regulatory definition. • Examples of loans which could be classified Substandard include:

• A small business loan with a balance of 150M that is 60 days past due, secured by equipment with a value (verified) of 200M. • A 50M loan that is current but secured by collateral worth 30M and financials that include unverifiable repayments sources.