Wisconsin Administrative Code
Department of Financial Institutions
DFI-CU 51-75 - Department of Financial Institutions-Credit Unions
Chapter DFI-CU 72 - Member business loans
Section DFI-CU 72.12 - Classifying non-delinquent member business loans to reserve for potential loss
Current through February 26, 2024
Non-delinquent member business loans shall be classified based on factors such as the adequacy of analysis and supporting documentation. A credit union shall classify potential loss loans as either substandard, doubtful or loss. The criteria for determining the classification of loans shall be as follows:
(1) SUBSTANDARD. A loan classified substandard is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. The loan must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. The loan is characterized by the distinct possibility that the credit union will sustain some loss if the deficiency is not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard.
(2) DOUBTFUL. A loan classified as doubtful has all the weaknesses inherent in one classified substandard, with the added characteristic that the weakness or 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.
(3) 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, that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may occur in the future.
