I am trying to set up procedures for reviewing loans. Would anyone like to share?

Your mileage may vary, but here is what I do.

I try to pick about 15% of all new loans for review (but your institution's size may make that impractical). When I review loans I look for negative traits in pulling the sample (ie low credit scores, collateral types that are suspect -1979 Pinto securing a $10,000 loan-, lenders who specialize in one type of lending branching into another type, etc.).

It took a while for it to sink in with me, but it is important to have a good rapport with the lending staff when you do reviews. I try to stress that we're all in it together and we have the same goals: clean portfolio, no unnecessary exceptions, good compliance, etc. I've also learned that the lenders can usually provide great information about customers when you talk to them, but they can't always convey that information when they do a write-up. Be fair, be positive, and use neutral language if you do a summary as part of your review.

I would also try to get a feel for the concerns of the board and internal management about portfolio weaknesses and obtain a heavy sample of loans from those areas.

What exactly are you reviewing for? Credit Quality, Data Integrity, etc???

Being that I am fairly new to the area, I'm not exactly sure the extent my reviews should be. I suppose I would be reviewing for credit quality and data integrity.

OH DEAR GOD!!!! Russel is from Alaska! I'm not alone!!!

What is the position you're in Russell? It might help with a scope of review...

We do loan review on a quarterly basis. The review requires all large commercial loan relationships to be reviewed annually. All loans that are 60 days past due and non-accruing loans are reviewed each quarter. A sampling of all new loans and a sampling of existing credits are also selected for review.

Loans are reviewed for credit quality, loan file documentation, and compliance with internal policies as well as regulatory compliance. Each relationship is assigned a grade based on capacity, collateral, character, etc.

I hope this will help you at least get started.

I suggest you also test for account management by the loan officers. Are they obtaining financial info as required by loan covenants ? What about the non-financial covenants ? Are these being tracked. Get the exception reports from credit administration for help. Problems here will turn into bigger problems down the road if the officers are not servicing their credits properly. I speak from experience because since 9/11, our bank has seen a deterioration in asset quality and it can be traced back to servicing of the big commercial credits.

I am new to the auditing position and have little to no experience in the lending field. This question was posed by the EVP who would like to have written procedures. So I would guess this would be in terms of Credit.

Just an FYI...I pm'd "Russell" and she's going back to get more details from the person who requested the review. There are just too many reviews to discuss. I told her we could provide more information if we knew what the EVP was looking for.

A good resource is Robert Morris Associates. They have some good books, many can be downloaded directly (after you pay for them) www.rmahq.com