Whether your financial services company is starting up an independent loan review function or enhancing an existing department, the goal should be the same. Your organization needs to verify that underwriting and portfolio management comply with regulatory expectations, internal policies, procedures, and guidelines – but that’s only a baseline for adequacy. You also want to create a program that reflects the company’s risk appetite and gives the board of directors, audit committee, and senior management confidence that credit risk is appropriately managed.
In many cases, loan review directors who are trying to understand the operations and challenges of their department as well as the bank’s portfolio might feel pressure to dive in and start reviewing the portfolio right away – and that’s when things get choppy. Once engrossed in the day-to-day of credit risk review, it’s easy to get trapped in a cycle.
Before you know it, you’re six months in, and you haven’t performed a comprehensive assessment of your loan review program or portfolio risks. Organizations easily can get trapped in inefficient, ineffective processes, and loan review directors might wonder why their team isn’t more productive.
By establishing the proper groundwork for your loan review function first, you can create a department that’s more effective and more valuable to the organization.