Independent Banker - September 2023 - 21

ADVERTORIAL
Loan Review Best Practices:
Key to Combating Credit Risk
by David H. Ruffin, Principal, IntelliCredit™
here's a proven correlation between early detection of emerging credit risk and reduced losses. Effective and efficient loan reviews
can help your institution better understand the portfolio and identify potential risk exposures.
Now is the time for banks to ensure their loan review, either in-house or external, can proactively identify credit weaknesses, gain deep
knowledge about the subsegments of the portfolio, and act to mitigate risk at the earliest opportunity. It's time to emulate a whole new
set of loan review best practices. Here are a few.
Trust your reviews to professionals with deep credit
experience - not just junior CPAs.
Your reviewers should be seasoned experts that are skilled in
the qualitative and quantitative axioms of credit, with handson
experience in lending and risk management.
Confirm your review includes paralegal professionals
to conduct separate documentation reviews.
It is essential that your loan reviews include specialists with
technical expertise in regulatory and legal compliance,
lending policy adherence, policies, collateral conveyances,
servicing rules, among others - working in tandem with
seasoned credit professionals.
Insist on smart, informed sampling.
To uncover vulnerabilities in specific segments of the
portfolio, rely on a selection process that helps you choose
very informed samples indicating possible emerging risk.
Quantify both pre- and cleared documentation, credit
and policy exceptions.
In the best of times, many loan reviews show almost no
bottom-line degradation in loan quality for the portfolio as a
whole. On close examination, you may find significant numbers
of technical and credit exceptions indicating that the quality of
your lending process itself may need to be tweaked.
Understand your own bank's DNA.
Institutions must analyze their own idiosyncratic loan data.
Arm your loan review team with the ability to automatically
drill down into the portfolio and easily examine trends and
borrower types to inform risk gradings, assess industry and
concentration risk, etc.
Observe pricing based on risk grades, collateral
valuations and loan vintages.
Common risk characteristics are shared by loans originating
around the same time and credits that tend to migrate as a
IntelliCredit Smart Loan Review™
group. Isolating and analyzing those can answer the important
question, " Are you being paid for the risk you're taking? "
Pair loan reviews with companion stress testing.
Regulators are encouraging stress tests as a way for banks
to learn where their risk may be embedded. Companioning
the tests with loan reviews is a productive way to gain this
knowledge.
Transparently report and clear exceptions in real time.
Banks can benefit from using fintech's efficiency to remove
huge amounts of time, team meetings and staff intrusions
from the traditional process of reviewing loans.
Conduct loan reviews as a highly collaborative and
consultative exercise - counter to " just another audit. "
An effective loan review is not an internal audit experience.
It's an advisory process, and this approach is extremely
important to its ultimate success. Substantive dialogue
among participants with differences of opinion is key to
favorable outcomes for the institution.
Take advantage of a technology platform to automate
every possible aspect of the loan review process.
Best practices call for the efficiency that comes with
automating the loan review process to the maximum extent
possible, without sacrificing substance or quality. Technology
drives the race against loan risk, making early detection of
vulnerabilities faster, easier and more complete.
Loan reviews are critical to an institution's risk-management
strategy. It's a one-two punch: (1) deeply qualified reviewers and
(2) automated technology that, when combined, deliver a more
efficient, less intrusive loan review process that will help combat
the looming credit stress ahead.
David Ruffin is principal of IntelliCredit™, a division of QwickRate®
credit experience in the financial industry.
, and has extensive
T
Service. Request a quote today!
www.intellicredit.com

http://www.intellicredit.com

Independent Banker - September 2023

Table of Contents for the Digital Edition of Independent Banker - September 2023