 - An effective program that monitors the risk and direction of the bank’s portfolio.
- Without effective Loan Review providing objective information, Management response is delayed and portfolio quality suffers
- Loan Review is also the basis for a bank’s Risk Management and Loan Loss Reserve Methodology.
- Loan Review provides Management with an objective portfolio evaluation of current and potential risk.
- The process offers detailed documentation to support any risk analysis.
- Each risk rating is also documented though a complete financial analysis of the individual credit.
- Summary reports are written that document risk and trends within the portfolio.
- Successful Loan Review recommends improvements to the credit and risk management function.
- Loan Review forms the basis for portfolio control and the Loan Loss Reserve Methodology.
But my Portfolio Doesn’t Have Any Problems. Why Do I Need Loan Review?
- If the basis for this position is delinquency or losses, will they also be the catalyst for action?
- In either case management will be reacting to the problem.
- Our industry landscape is littered with institutions that reacted to a problem instead of managing portfolio risk.
Who Should Conduct The Loan Review Analysis?
- The individual performing a risk analysis must be objective and independent!
- This same individual needs the credit / lending experience to make a credit / risk analysis that will stand up to the lender or Regulator!
- Loan Review should report to the Board or Senior Management. It must never report to the Senior Lender!
Loan Review Tools:
- The mechanics, experience and methodology employed by an effective program should mirror the specific portfolio risk and mix.
- A Loan Review should be capable of evaluating the credit risk and supplying management and the board with reports that detail the individual risk and portfolio trends.
Specific Tools Common to Most Loan Review Programs: A Comprehensive Scope.
- The credits to be included in the risk analysis should offer a selection of the portfolio that accurately profiles the risk in the bank’s portfolio.
Credit Analysis.
- Each loan review should include a complete financial analysis that will support the reviewer’s risk rating. This analysis should document all risk ratings including those rated Satisfactory.
Risk Ratings
- Risk ratings should be assigned by both Loan Review and the Loan Officer.
- The rating categories and their definitions should be included in the bank’s loan policy.
- Each rating must be supported by the credit analysis noted above.
- Any classified or criticized ratings must also be accompanied by an Action Plan that addresses the credit problem
Management Reporting.
- The risk analysis documented in each review must be summarized and submitted to management through a complete set of management reports.
- Report information must document risk ratings, portfolio trends and underwriting standards.
Loan Review Effectiveness.
- An effective Loan Review must stand the test of regulatory review and the bank’s Risk Management demands.
|
