Dictionary of Banking Terms: loan grading
loan grading
loan classification system, or credit scoring system, that assigns asset quality ratings to a loan portfolio, based on comparative evaluation of outstanding loans. For example: (1) not reviewed; (2) satisfactory (an acceptable business credit); (3) special mention (missing documentation); (4) substandard (normal repayment in jeopardy); (5) doubtful (full repayment questionable); and (6) loss (complete write-off).
Many lenders use the National Bank Examiner Risk Classification System in assigning risk ratings to commercial loan portfolios, because they are required to use this format in reporting loan quality in the report of condition filed quarterly with a bank supervisory agency.
