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Commercial LoanCommercial Loan Review Identifies Portfolio Risk, Assesses Credit Administration, Polices, and Procedures

The quality of a bank or credit union’s loan portfolio is a key component in the potential risk to depositors and to the FDIC or NCUSIF insurance funds. Therefore the bank’s lending policies, credit administration, and the quality of the loan portfolio is aggressively scrutinized by regulators. With effective policies, credit administration, and loan review process, management can be assured that lending controls protect your institution from significant financial, operational and reputational harm. The right loan review system will help ensure that problem credits have been identified and are appropriately monitored to mitigate losses.

An effective commercial loan review system should include:

  • Prompt identification of loans with potential credit weaknesses
  • Identification of relevant trends that affect the collectability of the portfolio and segmentation of portions of the portfolio that are problematic
  • Assessment of the adequacy of adherence to internal credit policies and loan administration procedures
  • An objective and timely assessment of the overall quality of the loan portfolio for senior management and the board to manage risk
  • Accurate and timely credit quality information for financial and regulatory reporting purposes, and an evaluation of the adequacy of the allowance for loan and lease loss

CrossCheck Compliance can provide loan review experts to assess your portfolio and enhance your processes. Our loan review services include evaluation of the institutions loan policies and procedures, credit administration function, loan grading system and methodology for calculating its allowance for loan and lease losses (ALLL).

We assess and stratify the commercial loan portfolio based on the nature and dollar amount of the loans, the collateral, source of repayment, structure, etc. This stratification, interagency guidance, and management input, is used to categorize the portfolio by risk, and then determine the appropriate sample of loans to be tested in the loan review process.

Individual credits are then evaluated with respect to the following:

  • The credit request, as presented for approval, accurately portrayed the client’s financial condition and did not omit any material information
  • Proper approval by the loan officer and/or loan committee(s)
  • Whether the loan was closed, funded, and entered in the loan application system  as approved
  • The sufficiency of credit and collateral documentation and any documentation exceptions were identified properly for future follow-up.
  • Proper lien perfection
  • Adherence to loan agreement covenants
  • Compliance with internal policies and procedures (such as aging, nonaccrual, and classification or grading policies) and laws and regulations
  • Proper support for the risk rating within the context of the bank’s risk rating definitions

Once the review is complete, we provide management with substantiated recommendations for loan grade changes along with expert recommendations to improve any credit administration or loan policy and procedure weaknesses noted.

Other loan review services we provide include:

  • Review or development of loan grading systems
  • Policy and procedure review and development
  • Assessment of allowance for loan and lease losses (ALLL)
  • Due diligence reviews