|
Loan review has got significant importance especially in this age of turbulent economics. It has therefore become imperative for institutions to remain in know of the potential risks of their portfolio. In order to do so, it is very important to detect as early as possible expected troubles through regular and recurring evaluations of asset quality, internal controls, and administrative procedures. Importance of loan review It was in late 2006, that the FFIEC issued a revised Interagency Policy Statement on the Allowance for Loan and Lease Losses. The policy states that it is "essential that institutions maintain effective loan review systems". This has been emphasized because of the important role played by the critical risk ratings and portfolio assessment in management's assessment of reserve adequacy. Professional loan reviewers In tune with these strict guidelines, there are many professional agencies that provide thorough and extensive loan reviews. They employ many techniques to conduct this review including ALLL methodology and validation. Mostly, they also house seasoned professionals who are actively associated with money market, regional banks, community banks, and commercial finance companies and hold senior or executive level management experience. Process for loan review Typically, the programs take about a year along with 75% of the client's average outstanding loans and letters of credit. Now-a-days, the programs have become software assisted and hence customized. The reviews are divided into specific intervals and during each visit data and remarks of the previously classified and criticized loans are updated. Having done that, professionals review newly criticized or classified loans, delinquencies, non-accruals, restructured transactions, new and renewed commitments since the prior review visit, and when and if relevant, other borrower related credit exposures. The adequacy of the allowance for loan and lease losses is also tested. The process also involves documenting the organization’s lending policies, procedures and overall lending process. In order to make each visit the most fruitful, the agency informs the client before the actual on-site visit. It gives the client time to be prepared with all the necessary documents and materials. This then helps expedite the entire process of review in an effective and meaningful way. The review normally starts with the criticized and classified loans, leading to other delinquent and non-accrual accounts and finally ending up with the scrutiny of other accounts that may satisfy the requirements of the engagement. Communication The crucial part of any thorough loan review is the effective communication. Having assessed the credit files, internal loan reports and loan documents, it is very necessary that the outcome is communicated to the client in a very precise and clear manner. This requires thorough discussions in meetings. The professionals take every extra care that discussions are enriching, precise and absolutely worth holding for the benefits of the client. Loan Review Programs by CEIS Review, for more information call us at 888.967.7380
Related Articles -
Loan Review, commercial loan review, Loan Review Programs,
| 
