Or. Admin. R. 441-720-0360

Current through Register Vol. 63, No. 9, September 1, 2024

Section 441-720-0360 - Commercial Loan Risk Classifications

Commercial loans must be classified (graded) as to risk, based upon factors established by the credit union. Such factors should include the analysis of the credit and supporting documentation for the risk classification (grade) given, based upon the financial strength of the borrower. The credit risk rating system should include, but not be limited to, these categories:

(1) SPECIAL MENTION. A special mention loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the credit union's credit position at some future date.

(2) SUBSTANDARD. A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. The loan classified has a well-defined weakness or weaknesses that jeopardize the liquidation of debt. The loan is characterized by the distinct possibility that the credit union will sustain some loss if the deficiencies are not corrected.

(3) DOUBTFUL. A loan classified doubtful has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include: proposed merger, acquisition, or liquidation actions; capital injection; perfecting liens on collateral; and refinancing plans.

(4) LOSS. A loan classified loss is considered uncollectible and of such little value that its continuance as a loan is not warranted. This classification does not necessarily mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may occur in the future.

Or. Admin. R. 441-720-0360

FCS 2-2002, f. & cert. ef. 8-27-02; FSR 1-2022, amend filed 05/18/2022, effective 6/1/2022

Statutory/Other Authority: ORS 723.102

Statutes/Other Implemented: ORS 723.152, 723.156 & 723.512