3 keys to effectively handle problem loans

6/16/2020
3 keys to effectively work through problem loans

As credit quality deteriorates and problem loans are identified, the right technologies and processes can support informed, timely decisions. Learn more about what you can do to prepare.

Once a problem loan is identified and an initial assessment conducted, an appropriate strategy is determined to resolve the loan. This can include:

  • Borrower refinancing with another lender
  • Sale of the loan to another lender
  • Restructuring of the loan
  • Monitoring until condition improves
  • Foreclosure and liquidation
  • Borrower bankruptcy

Driving the best outcome for your bank involves getting the right blend of technology and process. Here are three ways to do that.

1. Take your problem loan strategy online

1. Take your problem loan strategy online

If you're managing your problem loans with offline solutions like spreadsheets and PDFs, you could end up creating a lot of unnecessary work for your people, causing delays and exacerbating human error. A managed web-based problem loan management solution can help you stop rekeying data and emailing documents to customers — and leverage automated reporting to get a more reliable view of the scope and scale of problem loans at various stages.

2. Create a feedback loop between your assessment activities and problem loan strategies

Executing on any strategy requires close monitoring of the borrower. Your assessments should continue and – depending on changes in borrower performance or willingness to engage in productive conversations with you – should inform any adjustments to your strategy.

2. Create a feedback loop between your assessment activities and problem loan strategies.
3. Make sure your approach is audit friendly.

3. Make sure your approach is audit-friendly

As you classify TDRs and impaired loans, and estimate the required reserve, verify that they’re in line with U.S. GAAP. Material accounting classifications and estimates are highly scrutinized by auditors and examiners. Also, make sure you have the right process controls in place, a repository for supporting documentation, and a clear audit trail.

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Dave Keever
Principal