Credit Evaluation School Instructor eBook - Oct 2023

Internal Use Only

LOAN CLASSIFICATION DEFINITIONS Doubtful Loans classified Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

• Again, this is the regulatory definition. • Doubtful is usually used on a temporary basis while awaiting some event to move it to Loss or to Substandard or Pass. • An example: A farmer is past due on his equipment debt and has decided to hold an auction and quit farming. Collateral value is believed to be close to the loan amount, but unknown. Auction to be held in 60 days. May call this doubtful until auction is held and outcome is known. In today’s examining world, doubtful loans are usually impaired and with impairment analysis and specific allocation, we more often see a substandard classification.