Loan Review Services
The health of a financial institution rests primarily on the health of its loan portfolio, which is its greatest asset and its biggest risk. Lending performance is critical to the Credit Union’s future—and management and Supervisory Committee members must ensure sound lending processes and loan portfolios.
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, loan officers will approve loans outside of policy because the member is a long-time member of the Credit Union with a good payment history. Credit Unions are known for working with their members, but loans outside of policy should be approved by another member of management and reported to the board, at the minimum.
We have seen many Credit Unions suffer from indirect lending. This relationship can be a very profitable segment of a loan portfolio—but it can also be the most damaging. Strong internal controls and policies are needed to ensure that the auto dealerships follow Credit Union policy and that Credit Union employees approve 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. At the same time, commercial loans are often a riskier option over consumer lending.
Employee Loans Review
Credit Unions must adhere to lending methods with strong internal controls to comply with regulatory guidelines when issuing employee loans. Additionally, the Credit Union must demonstrate review practices that include a regular review of all employee loans by the Board.
Loan exceptions occur whenever a loan file deviates from policies—such as underwriting exceptions and terms and conditions overrides. Review audits are needed to track the volume and frequency of the exceptions, ensure they are being brought to and approved by the Board, and mitigate risk.
Portfolio Risk Analysis
During regular auditing of a Credit Union loan portfolio, we consider concentrations of loan types and risk gradings 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 act as constructive tools to help members and the Credit Union. Correct implementation of these procedures helps borrowers during financial struggle and minimizes the credit loan’s default costs.
Our auditors can help your credit union identify when loan modifications or TDR are appropriate. Regular audits will support proactive strategic planning for at-risk loans, compliance, and regular reporting that consistently monitors 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 necessary to protect against risk and 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.