Taking stock

Does your loan review meet the demands of regulatory guidance? Answer these questions to perform a high-level assessment of your loan review area.

Oversight, structure, and governance

• How effective are board reporting and oversight procedures?
• Is there adequate oversight by the institution’s executive management?
• Is the loan review function fully independent of the lending process?
• Are findings and reports presented directly to the board or board committees?
• Is the loan review function evaluated regularly by an independent party?

Loan review charters, policies, and procedures

• Are there compliance and regulatory gaps or deficiencies within the loan review section of the institution’s loan policy and procedure manuals?
• What additional enhancement should be made to the loan review policy and procedure manuals based on industry best practices?
• What are the key findings from interviews with members of management and on-site reviews of the loan review processes?

Scope of loan review

• How often is the scope of the loan review function revisited?
• What is the process for reviewing the scope? Does the organization do a risk assessment to review scope?
• What new lending products have been added, and are non-loan investments part of scope?
• What are the areas of concentration? Have they changed over time?

Content of work papers

• Do work papers provide proper detail and show how conclusions are calculated?
• Are risk-rating assignments accurate, timely, well-supported, and consistent with policy guidelines?
• How accurate and timely is credit analysis?
• Do work papers adequately capture credit administration issues or trends and identify lapses in monitoring or documentation?
• Is problem loan management adequately assessed and documented?
• Is there adequate tracking of trends such as policy exceptions, documentation, and credit administration concerns?
• Is there sufficient credit and collateral documentation?

Reporting

• Do scheduled reports adequately reflect content and trends from work papers?
• Are policy exceptions tracked and verified?
• Is there an adequate process for following up on issues? Are management responses well-thought-out, with specific actions and timelines?
• Are issues from prior reports followed up on subsequent reviews?
• Does the audit committee maintain adequate involvement?

Staffing

• Is there enough staffing to meet the annual loan review plan?
• How effective are training and continuing education in the department?
• Are the competencies, qualifications, experience, and depth of personnel adequate?
• Are the qualifications of third-party providers or contractors reviewed and confirmed?