Financial institution- Loan workout

Loan classification system

• Acceptable - A loan with no detectable problems, which the associate risks are unlikely to materialize over time.
• Special mention - A loan with material weakness that nonetheless does not warrant the expectation of a loss or a substandard classification.
• Substandard - A loan for which neither the borrower's package the loan would be adequate to protect the lender from loss.
• Doubtful - A substandard loan with the added risk that any attempts to liquidate value and to collect on it are unlikely to generate enough to recover the lender's capital.
• Loss - A loan is deemed uncollectible, because any assets backing the loan are gone or have lost their original value, and the borrower's means to repay the loan are impaired. The loan may still have salvage value, but the effort required to realize that value is beyond that considered reasonable, which justified the lender writing off the remaining outstanding balance.