Professional Documents
Culture Documents
Scope of Review
Decisions about which loans to be reviewed and how
often largely depends on loan size, complexity, and the
credit review policy of the institution.
Credit review policy of the institution set guidelines
which area of lending, what maximum amount of credit,
what percentage of total credit and the circumstances
of review. Some institutions determined that all loans or
commitments of over certain amount or more,
regardless of location, lending area, are eligible for
review. Credit review policy might include large loans
and collateral that could rapidly deteriorate in value for
regular reviews, while loans that fall bellow a certain
amount threshold might not be reviewed at all.
Approaches of Loan
Review
In passive approach of loan review, credit
reviewers review the credit files and other
loan documents available to them with or
without discuss with the lending officers,
even the problem loans cases.
In active approach, the reviewer reviews
up to date credit file, comments, appraise
value of equipment or real estate,
examine receivables, payables, inventory,
personal statements, more recent financial
statements and so forth in addition to
Substandard
Doubtful
Continuous loans
Demand loans
of Classified
Substandard Doubtful
Classified
Classified for
Continuous On the expiry Classified
of due date or more than 6 more than 9 12 months and
Loan
not renewal
Demand
Loan
months
but months
but more
not more than not
over12
9 months
months
Classified
Classified
more than 9 more than 12
months
but months
and
less
than12 more
months
Principles of Effective
Loan Review
Avoid the gotcha approach in words and
actions,
Communicate in timely way. Do not spring
surprises, touch base with the involved
parties, and get the full story,
Give
credit
where
credit
is
due;
acknowledge when the line initiates action.
Use the team approach. Ask How can we
fix this? versus How did this get broken?
Principles of Effective
Loan Review
Avoid sharp and prickly adjectives,
Keep materiality in mind: Nice to have versus need
to have; and underwriting oversight on an isolated
basis should not be a cause for a public humiliation;
an issue on a $10,000 loan probably is not an
important issue on a $10 million loan,
Avoid jumping to conclusions, especially when you
have not discussed the issue with all parties involved,
Recognize signals you may be giving; dont start out
with we are right and you are wrong body language
and verbal cues. After all, you may be wrong. Listen
at least as much as you talk,
Principles of Effective
Loan Review
Make sure your constituents know
that you recognize risk grading is as
much art as it may be science and
that you are equally open to
upgrading as downgrading, and
If it does not make sense, it is
probably wrong.
Definition of Problem
Loan
Behrens (1998) defines problem loan
as:
A problem loan can also be defined as
one in which there is a major
breakdown
in
the
repayment
agreement resulting in an undue
delay in collection, or one in which it
appears legal action may required to
effect collection.