Loan Review Services
The health of a financial institution rests largely on the health of its loan portfolio, which is its largest asset, and its biggest risk. Credit union management and Supervisory Committee members need to ensure sound lending processes and loan portfolio because lending performance is critical to the credit union’s future.
We offer loan review services:
- to examine the existing policies and procedures for vulnerabilities ,
- to confirm appropriate and collectible lending practices are being followed,
- and to validate adherence to internal lending policies and regulatory guidelines.
Consumer and Real Estate Loan Portfolio Review
Consumer lending is the bulk of lending at most credit unions, and as the largest category of loans, consumer loans are also more susceptible to “preferred lending”. Often times loan officers will approve loans outside of policy because the member is a long time member with the Credit Union with a good payment history. Credit Unions are known for working with their members, but loans outside of policy should at a minimum be approved by another member of management and reported to the board.
We have seen so many Credit Unions suffer from indirect lending. What can be a very profitable segment of a loan portfolio, can also be the most damaging segment. Strong internal controls and policies are needed to ensure the auto dealerships are following Credit Union policy and Credit Union employees are approving the loans.
Member Business Loans (MBL), Commercial Lending
Member business loans or lines of credit can be attractive for credit unions looking to grow their lending portfolio, but at the same time, commercial loans are often a riskier option over consumer lending.
Employee Loans Review
For loans to employees, credit unions must adhere to lending methods with strong internal controls to comply with regulatory guidelines. As well as, review practices that include regular review of all employee loans by the Board.
Whether underwriting exceptions or terms and conditions overrides, loan exceptions are those that deviate from policies. Review audits are needed to track volume and frequency of the exceptions being made, ensure those are being brought to and approved by the Board, and tracked properly to protect against risk.
Portfolio Risk Analysis
With regular auditing of a credit union loan portfolio, concentrations of loan types and risk gradings are weighed to determine sound lending practices, contingency plans to mitigate losses, and safeguards built into processes. With an overall review of loan portfolio quality, management can understand current risk exposure and potential for future improvements.
Loan Modifications & Troubled Debt Restructuring
Loan modifications and troubled debt restructuring (TDR) can both be constructive tools to help both members and the credit union itself: to help borrowers during times of financial struggle and also to minimize the credit union’s loan default costs.
Our auditors can help your credit union in identifying when loan modifications or a TDR is appropriate. Regular audits will support proactive strategic planning for at risk loans, compliance, and regular reporting for consistent monitoring and tracking of all at-risk and modified loans.
Accounting for Loan Portfolio Review
Because loans are a clear majority of assets, your loan portfolio health is essential to your financial institution’s continued viability. A dedicated, regular loan review program is an essential tool to protect against risk and to validate compliance with regulatory guidelines.
Call for Credit Union CPA Services
Contact our assurance and accounting team to customize a plan for your credit union’s needs.