The annual or periodic review of loans is generally required and favored across all agencies as part of an institution’s ongoing loan portfolio monitoring practice. Quality portfolio management includes the periodic assessment of credit risk over the life of a loan, including the adjustment of risk ratings as deemed appropriate based on the evolving level of risk inherent in a credit over time.
- We answer several frequently asked questions such as: “Why do we need to perform annual reviews when our regulators have never required us to do so”? “How do we find the time and staff to complete reviews”? “We know our customers so well, what purpose would an annual review serve”?
- A discussion of how annual reviews fit into the continuum of lending risk management from origination to the ALLL.
- To include several aspects of the annual review process including:
- Appropriate commercial loan portfolio coverage (parameters to establish meaningful penetration of the institution’s total non-consumer loan portfolio)
- Identification of loans for review – how to effectively flag relationships to be reviewed by size, risk/collateral category, concentrations, etc.
- The monitoring and tracking of the universe of loans to be reviewed and methods to maintain a timely review schedule
- Recommended review contents, i.e. cash flow analysis, collateral value review, site inspections, guarantor financial analysis, and credit reports, etc.
- We will discuss differing approaches to primary sources of repayment, including the importance of a forward-looking analysis in projecting sustainable cash flow to service debt.
- The ongoing monitoring of collateral value, with an emphasis on best practices in the monitoring of commercial real estate.
- Validating the risk grade. The ultimate reason for annually reviewing a credit is to assess changes to the credit’s risk profile since the loan was originally underwritten or last reviewed. All of the above topics will be tied into the use of those conclusions within the institution’s risk grade model to accurately validate or alter the current grade and to establish awareness of weaknesses that are better proactively addressed in order to limit the risk of loss.
Target Audience: This presentation is intended for all personnel involved with the origination, underwriting, portfolio management, and approval of non-consumer credits
Presenter: Aaron Lewis, Young & Associates
Recording available through: July 28, 2021