LOAN REVIEW BEST PRACTICES Key To Combatting Credit Risk In Stressful Times By David Ruffin, Principal, IntelliCredit/QwickRate Uncertainty seems to be the only constant on the economic horizon these days. Despite benign risk metrics across the country’s credit portfolios, there is an almost industry-wide sentiment that credit stress looms ahead. According to the Risk Management Association (RMA) Annual Community Bank Survey, 84% of community bankers indicated that credit risk was a top concern. One thing we do know is that effective and efficient loan reviews can help you understand your portfolio and identify potential risk exposures. And — more importantly — risk that’s already emerging. It’s this early detection that helps institutions minimize losses. Also encouraging is that automated technology is making it possible to achieve these goals with amazing agility. Now is the time for community banks to move from a sluggish, decades-old loan review process to an approach that will help you proactively identify potential credit weaknesses, gain deep knowledge about the subsegments of your portfolio, learn where the vulnerabilities exist, and act to mitigate risk at the earliest opportunity. It’s time to consider credit review approaches that facilitate an expansive range of best practices like the ones outlined below. 1. TRUST YOUR REVIEWS TO PROFESSIONALS WITH DEEP CREDIT EXPERIENCE — NOT JUST JUNIOR CPAs. Your reviewers should be seasoned experts, skilled in the qualitative and quantitative axioms of credit, with hands-on experience in lending and risk management. Because their experience will drive better reviews and deliverables, it’s a good idea to ask for bios of people assigned to your institution. 2. CONFIRM YOUR REVIEW INCLUDES PARALEGAL PROFESSIONALS TO CONDUCT SEPARATE DOCUMENTATION REVIEWS. With growing evidence of degradation in back-shop support, it is essential that your loan reviews include specialists with technical expertise in regulatory/legal compliance, lending policy adherence, policies, collateral conveyances, servicing rules, etc. — working in tandem with seasoned credit professionals. 3. INSIST ON SMART, INFORMED SAMPLING. Relying solely on random samples and reviewing only the largest credits is insufficient today. To uncover vulnerabilities in specific segments of your portfolio, rely on a selection process that helps you choose very informed samples indicating possible emerging risk. David Ruffin is Principal of IntelliCredit, a division of QwickRate. He has extensive experience in the financial industry including a long and pronounced emphasis on credit risk in a variety of roles that range from bank lender and senior credit officer to the cofounder of IntelliCredit and its technology that is revolutionizing a decades-old loan review process. For more information, visit intellicredit.com or email info@intellicredit.com. 14 NEBRASKA INDEPENDENT BANKER
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