Loans and other assets that are at risk to some degree, in the opinion of bank examiners. Such assets fail to meet acceptable credit standards, and totals of classified loans are reported separately in bank Call Reports. State and national banking examiners have adopted uniform guidelines (the National Bank Examiners risk classification system) listing poorly performing loans as follows, from worst to least serious: Loss or complete write-off; Doubtful Loan, where repayment in full is questionable; Substandard where some loss is probable unless corrective actions are taken; and Special Mention indicating such potential problems as missing documentation or insufficient collateral.
Supervisory agencies require that lenders write down loans classified as doubtful to 50% of the original book value and loans classified as loss by 100% in calculating their net capital (adjusted capital plus reserves for possible loan losses) available for making new loans. See also Nonaccrual Asset; Nonperforming Loan.
