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#45664 - 11/26/02 05:27 PM ALLL internal audit - identifying problem loans
NancyF Offline
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NancyF
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Posts: 173
PA

I am working on an internal audit of the allowance for loan losses. One of the audit steps is to select loans recently charged off and determine if loan review procedures had identified them on a timely basis. In my sample of 5 charged off loans, 1 was identified as substandard 9 months prior to charge off, 1 6 months prior, 1 3 months prior and 2 loans were not identified until the quarter in which they were charged off. Sounds to me like perhaps this sample was NOT identified in a timely manner. Any opinions?

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#45665 - 11/26/02 05:44 PM Re: ALLL internal audit - identifying problem loans
rlcarey Offline
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rlcarey
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Galveston, TX
I would say that it depends on the specific circumstances surrounding each loan. I don't think that there is any magic timeframe. The question becomes - when should have the bank recognized the problem? If a customer is showing no problems and an extraordinary event happens and they bankrupt out of the blue, you not going to see these types of loans identified much ahead of time. However, if the loan was late on a chronic basis, it may have been identified years before. So - the answer is - it just depends.
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#45666 - 11/26/02 07:12 PM Re: ALLL internal audit - identifying problem loans
CHT Offline
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Silver Spring, Maryland, USA
I agree -- each loan is an individual case. What I would be looking at is the process, the proceedure, that the credit department used to ascertain whether or not they are truly identifying the risks inherent in the portfolio or managing by delinquency...

IMNSHO, FWIIW
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#45667 - 11/26/02 07:34 PM Re: ALLL internal audit - identifying problem loans
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All the posts above are excellent input, although you are correct that, based on the sample, you have a problem. The problem may or may not be mitigated by special events covering each sample loan. At the very least, you should consider installing migration analysis covering the LLR, or perhaps you already have a high LLR on substandard loans.

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#45668 - 11/26/02 07:49 PM Re: ALLL internal audit - identifying problem loans
Neytiri Offline
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Sounds like to me with what you have right now you don't know if the problem loans are being identified in a timely manner. I would probably increase my sample size and see if you have approximately the same statistics. Even if you pulled these charged off loans randomly, you may still have a sample that is not indicative of what is actually happening due to the size of your sample. I always do this if my results are inconclusive or if I am not satisfied that the sample is large enough for me to be assured my findings are accurate.

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#45669 - 11/26/02 08:25 PM Re: ALLL internal audit - identifying problem loans
rlcarey Offline
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Galveston, TX
It also has to due with homogenous vs non-homogenous loans. What type of loans were in your sample?

Grist - I would be hesitant to declare that there is a problem based on the information presented.
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#45670 - 11/26/02 09:05 PM Re: ALLL internal audit - identifying problem loans
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Grist - I would be hesitant to declare that there is a problem based on the information presented.

A problem is a question to be considered, solved, or answered. Since a question was posted, that's the equivalent of declaring a problem.

As far as you being hesitate, I'm not you so there is nothing to be gained by sharing your idiosyncrasies with me. I'm not interested.

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#45671 - 11/26/02 09:39 PM Re: ALLL internal audit - identifying problem loans
rlcarey Offline
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rlcarey
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Galveston, TX
Well, I would much rather approach management and say "I have a question" rather than say "We have a problem" when I am lacking all pertinent facts. I would hate for this person to be sitting in front of the management or audit committee with that attitude and get their lunch eaten. I think that is the type of advice that the original poster was looking for.

In an effort not to be rude on this forum, I will just say that some of your comments are uncalled for and add little to the value of your posts. While you may choose to disagree with my assessment of a situation, there is no call for belittling comments.
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#45672 - 11/26/02 09:56 PM Re: ALLL internal audit - identifying problem loans
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A problem is a question to be considered, solved, or answered. Since a question was posted, that's the equivalent of declaring a problem.

As far as you being hesitate, I'm not you so there is nothing to be gained by sharing your idiosyncrasies with me. I'm not interested.

I'm not interested in your comments. Now, do you get it? You are here to, I believe, offer your best advice, not comment on the words that other posters may use that are not aligned with your sensibilities. Possibly there will be an occasion where I will seek your advice, but this is not one of them. Just drop it.

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#45673 - 11/26/02 10:28 PM Re: ALLL internal audit - identifying problem loans
Maria Offline
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Sylacauga, Al, United States
Grist:

I have no comment to assist the original poster. I am reading to analyze everyone else's comments on this post. This is another method I use to learn.

You appear to be very intelligent and knowledgable in audit. I, among others, appreciate your thought process.

I have a question though, and I do not want to appear disrespectful to you in asking it. But why do you most frequently appear to be a "harsh" individual? Are you really that way or do some of your postings just come across that way? Are you happy doing what you do?

You can come back with "it is none of my business" and maybe it is not, but I would like to see us be able to use your knowledge and develop a camaraderie with you.

Somedays we go through enough of comments at work so we do not need to be abrasive with each other here.

Again, I hope what I am saying and how I am saying it comes across the way I am intending it to be, not harsh and just wanting to be helpful.

Opinions and requests are mine not my employer

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#45674 - 11/26/02 10:42 PM Re: ALLL internal audit - identifying problem loans
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Go away! I'm not interested in a group hug.

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#45675 - 11/26/02 10:46 PM Re: ALLL internal audit - identifying problem loans
Maria Offline
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Sylacauga, Al, United States
Afraid not. I am here to stay. And I do not give up easily. No disrespect intended.

Opinions are mine not my employer.

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#45676 - 11/26/02 11:07 PM Re: ALLL internal audit - identifying problem loans
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Marie: It was not my thought that you should to go away from this site, just go away from this kind of post, at least to me. You provide an interesting element to threads, and there is plenty of room for all those with something insightful or interesting (even provocative) to say, without someone lecturing as to style. Live and let live.

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#45677 - 11/27/02 02:59 PM Re: ALLL internal audit - identifying problem loans
Dollar Bill Offline
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Midwest
I think that you would need to take into consideration if the loan was put onto nonaccrual status and determine the past-due status prior to the loan being charged-off. It could be possible that the bank had a strong collateral position or the customer has recently filed bankruptcy, which has caused management to charge off the loan. There are several different factors that I think should be taken into consideration. I don't necessarily think that there is a problem.

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