DEFINITION of 'Loan Grading'
A system of credit scoring that assigns a rating of asset quality to a portfolio of loans. Loan grading is based upon a comparison of all loans that are outstanding within a given portfolio. This system places loans into one of six categories, ranked from most stable to complete write-off, or unreviewed.
BREAKING DOWN 'Loan Grading'
The risk-classification system used by the National Bank Examiner is employed by a large percentage of lenders. They use this system to assign a rating to portfolios of commercial loans. This is because lenders must use the same format when they file their quarterly reports of condition to bank supervisory agencies.