W16 - Credit Review

Credit Review

is an integral part of a total system for managing the credit portfolio. The overriding concern is to help develop correct credit practices and procedures to minimize credit risks.

Primary Goals of Credit Review

• Assess the management of credit risks

• Identify areas in the credit operation that need improvement and recommend corrective action

• Instill awareness adherence to credit standards and practices

• Provide inputs for credit policy formulation

• Provide feedback on the overall credit risk assessment

Scope of Credit Review

1. Portfolio Quality

2. Process Quality

3. Organization and Staffing

4. Loan Recovery

Portfolio Quality

refers to the assessment of loan portfolio to determine its overall health, risk exposure, and performance. It helps lenders identify trends, potential risks, and areas for improvement in credit management.

Key Aspects of Portfolio Quality

• Loan Performance Analysis

• Risk Assessment

• Credit Policy Compliance

• Portfolio Diversification

• Forecasting & Strategic Adjustments

Loan Performance Analysis

Evaluating repayment rates, delinquency levels, and default risks.

Risk Assessment

Identifying high-risk accounts and assessing their impact on financial stability.

Credit Policy Compliance

Ensuring loans adhere to established lending guidelines and risk management protocols.

Portfolio Diversification

Reviewing the mix of loan types, industries, and borrower profiles to minimize concentration risks.

Forecasting & Strategic Adjustments

Using historical data to predict future portfolio performance and adjust lending strategies accordingly.

Process Quality

This is an assessment of the procedures in the marketing and administration of accounts based on established credit policies and procedures.

Categories of Process Quality

• Target Market

• Credit Initiation and Analysis

• Loan Documentation and Disbursement

• Credit Administration and Documents Management

• Problem Recognition

Target Market

The review determines if the account solicitation activities are systematically undertaken considering the prescribed target market

Credit Initiation and Analysis

The review will focus on the quality of evaluation and analysis of credit risks that results in the extension of credit

Loan Documentation and Disbursement

This involves the verification of the appropriateness, adequacy and completeness of loan documentation, as well as compliance to all pre-release conditions of loan and collateral documentary requirements. The review sees to it that all availments, renewals, extension and other credit-related transactions are properly approved

Credit Administration and Documents Management

The review validates the effectiveness of the credit monitoring and supervision and support system

Problem Recognition

The review assesses the ability to anticipate adverse factors affecting credit risk and detects potential problem accounts, as well as timely reporting of such events to the proper authorities

Organization and Staffing

focuses on evaluating the structure, personnel, and processes involved in credit management. It ensures that the credit department operates efficiently and aligns with best practices in risk assessment and debt recovery.

Key Aspects of Organization and Staffing

• Staff Adequacy & Expertise

• Delineation of Functions

• Account Assignment

• Training & Development

• Process Optimization

Staff Adequacy & Expertise

Assessing whether the credit team has sufficient personnel with the right skills and experience.

Delineation of Functions

Ensuring clear roles and responsibilities among credit officers, analysts, and collection specialists.

Account Assignment

Reviewing how accounts are distributed among staff to optimize workload and efficiency.

Training & Development

Evaluating ongoing education programs to enhance credit risk management skills.

Process Optimization

Identifying gaps in workflow and recommending improvements for better credit administration.

Loan Recovery

assesses how effectively a lender manages delinquent loans and recovers outstanding debts. It helps lenders refine their strategies to minimize losses and improve repayment rates.

Key Aspects of Loan Recovery

• Remedial Management

• Normal Management

Remedial Management

This generally shows the action plan as well as results of recovery measures on distressed accounts. Assessment of this block includes the evaluation of work-out plans, actions on vital documentary deficiencies, tracking of remedial actions and actual results of recovery programs and actions.

Normal Management

This is an evaluation of the processes in the administration of problem accounts. The review deals basically on the credit monitoring and supervision activities, anticipation and recognition of problem