Loan Review Services

The loan portfolio is the most significant group of assets on the balance sheet of almost every financial institution; loans usually represent the majority of the institution's earning assets, and pose the greatest amount of risk.

Until recently, many banks, particularly regional and community banks, cited their superior knowledge of borrowers as sufficient to preclude the need for an objective loan review. Much of that feeling of security has vanished in recent years. Over 3,000 financial institutions have failed since 1980; most because of loan problems.

Many bankers recognize the need for loan review and have implemented internal programs. Others have retained outside firms.

Below are the services that may be included in a loan review:

• Overall evaluation of portfolio quality
• Evaluation of compliance with the institution's written policies
• Analysis of financial statements
• Evaluation of collateral
• Verification of the perfection of security interests
• Review of compliance procedures regarding regulatory and lending-related laws and regulations
• Training of internal loan review personnel
• Establishment of a loan rating system
• Establishment or verification of an adequate reserve for loan losses
• Review of loan administration
• Evaluation of lending personnel
• Review of adequacy of loan policy
• Evaluation of documentation standards, systems, and tracking mechanisms

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