DEFINITION of 'Doubtful Loan'
A loan where full repayment is questionable and uncertain. Degree of repayment of loans in question range from a complete loss to uncertain loss unless corrective actions are taken. Doubtful loans are usually non-performing loans on which interest is overdue and full collection of principal is uncertain.
BREAKING DOWN 'Doubtful Loan'
A loan classified as doubtful has all the characteristics of a substandard loan and credit weakness making full collection questionable and improbable. Fifty per cent of loans classified as doubtful are deducted from adjusted bank capital in computing regulatory capital adequacy.