Loan Review System
A loan review system mentions the responsibilities allocated to different areas such as credit underwriting, loan administration, problem loan workout, or other areas. Responsibilities usually include assigning credit grades, ensuring grade changes are made when needed, or compiling information needed to assess the appropriateness of the allowance for loan and lease losses (ALLL).
It is necessary that all banks have a successful loan review system. Complication of the system will fluctuate based on the bank’s size, type of operation, and management practices. Systems may include parts that are sufficient of the lending function or may place some dependence on loan officers.
Effective Loan Review System
Regardless of its complication, an effective loan review system should direct the following purposes:
- Quickly identify loans with well-defined weaknesses so that action can be taken to reduce potential loss.
- Provide necessary information for deciding the appropriate level in the ALLL.
- To identify similar trends affecting the loan portfolio and minimize problem areas.
- To assess the activities of lending personnel.
- To evaluate the acceptability of, and adherence to, loan policies and procedures and detect compliance with relevant laws and regulations.
- To supply the board of directors and management an objective assessment of the loan portfolio