Loan Review – Crucial Aspect for Organizations in Transient

Socio-Economic Scenario

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.

Find more information at http://www.ceisreview.com/ or call us on

888-967-7380