This article is substantially updated from a 2013 blog post.
A sound system of independent loan review on an ongoing basis is especially vital for banks and credit unions navigating the uncertainty of the coronavirus pandemic. It’s also critical for reinforcing that management and the board of directors are able to receive accurate and timely updates about the health and performance of the financial institution’s portfolio.
Financial institutions with strong, independent loan review and, more broadly, credit risk review, can react more quickly to changes in the market, according to Ancin Cooley, principal of Synergy Bank Consulting and Synergy Credit Union Consulting. Cooley, who provides advisory services on process improvement, including the internal loan review function, says effective challenge in loan or credit review allows institutions to react with confidence that they have an accurate view of the current portfolio.
Being able to change course allows financial institutions to avoid issues – for example, by moving away from loans with a certain type of risk (whether that’s interest, credit, or liquidity). The ability to pivot rapidly additionally allows banks and credit unions to capture opportunities their peers might miss, such as taking on more loans of a specific type or adding a new loan product, Cooley says.