Independent loan portfolio reviews, by those not involved in the loan approval process, are required per regulation. As part of the loan review process, Ardmore provides outsourced or co-sourced loan reviews for clients.
We identify existing, or emerging credit risks predicated on risk-based scoping, portfolio analysis, and evaluation of the borrowers’ risk ratings. As part of the Third Line of Defense in Credit Risk Management (CRM), Ardmore also evaluates the quality of underwriting, monitoring, measurement, and control of the portfolios examined.
Onsite/Remote Reviews
Loan reviews can be performed either on-site or remotely. Both review options result in the same high-quality analysis and reports by senior-level credit risk management professionals.
Borrower Risk Validation
The first objective in CRM is to identify credit risk. Ardmore’s mission, therefore, is to analyze and confirm or suggest changes to risk ratings on samples of new or existing borrowers.
Experts Provided
We provide a senior management professional as Relationship Manager/Team Leader for each client engagement and individual review. All Ardmore consultants are highly skilled in credit, with most having held senior-level lending and management positions within regional, national, or community banks.
Is your credit third line of defense (Loan Review) positioned and equipped to bring real value to your institution?
Regulators and CPAs expect Loan Review to be an effective third line of defense, and perhaps, even more importantly, bank management and Boards that are strategically thinking expect that as well. In today’s tight margin environment, bank management is looking closely at all departments of the institution, and while often overlooked, Loan Review departments in all sizes of banks are under a new level of scrutiny. What do they contribute to more effective credit risk management? What value do they create, and can they be more efficient?
What Loan Review Departments should not be:
- A costly bureaucratic administrative burden without strategic focus
- A function that questions the credibility of the 1st (frontline officers) and 2nd line (underwriters or approving credit officers) of defense without restraint
- A function that is not fully respected by the 1st and/or 2nd lines of defense and other members of management (which can undermine Loan Review’s independence and effectiveness)
- A function that merely rephrases what the 1st and/or 2nd lines of defense write or say without adding any value to the process
- A function that likes to check boxes and highlight immaterial items
- A function expected to find possible fraud and/or mistakes in documentation made by the 1st and 2nd lines of defense
What are the characteristics of an effective and strategically focused Loan Review Department as the 3rd line of credit defense?
- Effectiveness and efficiency in achieving its objectives, and not a slow, costly bureaucracy
- People and processes equipped with tools to control all phases of related services and communications
- Focused on risk‐based scope for annual loan reviews with a strategic outlook
- Concentrates on material issues that impact risk in underwriting, monitoring and control of credits
- Acts independently to give comfort to bank auditors, regulators and bank management/boards in the integrity of the underwriting upon which credit decisions are recommended and approved
- Looks for trends and outliers that could immediately or prospectively impact portfolio risk
- Works collaboratively and with respect to all constituencies to achieve accuracy, insight, and cooperation while remaining totally independent
- Personnel that is strong in credit training, has good experience in lending and credit analysis, and communicates well, ensuring no surprises
- Creates value for others in bank, and works as equals with 1st or 2nd line officers
- Works cooperatively when necessary with other 3rd line of defense functions such as compliance, internal audit, appraisal review, whether third party providers or within the bank
- Can give credibility and comfort to the bank’s board of directors that their duty of oversight is being carried out effectively to assist in protecting shareholders’ interests
How Can Your Bank Better Equip Your Credit 3rd Line of Defense to Bring More Value?
- Train staff on practices and processes to perform a more meaningful and efficient risk‐based Loan Review Exam
- Create concise and risk‐based analysis as opposed to “re‐underwriting” the credit in pointless detail
- Generate meaningful statistics and trends from Loan Review exam results that show potential impact on bank and product profitability, bank risk and strategies
- Provide data from loan reviews that can be used for peer comparisons of performance as well as portfolio budgets and targets
- Consider using an automated Loan Review toolset that can:
- Automate scoping and sampling of the portfolio for exams to ensure coverage, diversity and focused risk assessment in areas of strategic focus
- Add security, control and auditability to the management of credit data used to set up and perform exams
- Automate line sheets and templates to reduce or eliminate time‐consuming data entry and extraneous detail
- Create data from the review, not just text, which can be used for rapid and meaningful summarization and reporting
- Automate remote quality control for in‐exam corrections and more consistency in content and presentation
Have you evaluated your credit 3rd line of defense recently?
Do you have the people, processes, platforms, tools and controls to be efficient (less costly), and more valuable and insightful?
It’s the old story about the wood cutter who tried and tried again to cut more wood in the same amount of time, the same old way with deteriorating results; when he finally thought about sharpening his saw, he immediately gained great results. Better tools and planning rather than merely whipping reviewers to go faster to cut costs or adding more people to the process is the road to success.