Transcript OVERVIEW - Maktabat MEPI

FINANCIAL SERVICES VOLUNTEER CORPS
Developing Examiner Guidelines for Evaluating
Commercial Bank Internal Control
(Credit Risk Management)
Banque d’Algerie (BdA)
June 14-18, 2009
Presented by:
Robert Lyon, Retired Credit Risk Officer FRB
Credit Risk Management
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Loans Comply with the Loan Policy?
Approval process
Collateral valuation
Loan limits
Loan concentrations
Industry
Geographic
Loan types
Lending Controls
• Lending Process
• Key Information
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Lending Process
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Request
Presentation
Approval
Documentation
Funding
Review
Monitoring
Key Information
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Amount
Purpose
Yield
Term
Collateral
Agreement / Documentation
Repayment schedule
Sampling of Loan files
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Purpose
Disposition of proceeds
Repayment schedule
Financial statements
Memoranda of discussions with borrower
Problem Loans
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Definition – past due or restructured
Action plan for remediation
Loan loss reserve allocation
Identification and Migration analysis
What did management learn?
Does the Board Know
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Total credit exposure
Lending activities
New credit extensions
Overdrafts
Past due loans
Watch list loans
Insider loans
Anticipated charge-offs
Internal Loan Review
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Internal Loan review thoughts
Loan Review / Rating Objectives
Characteristics of Loan Review Program
Risk Rating / Credit Grading Systems
Personnel involved Risk Rating System
Risk Rating Elements
Loan Review – Loan Rating
Objectives
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Consistent application
Are weak loans promptly identified?
What are the trends?
Are internal Credit policies followed?
Provide management with accurate
information
– Financial and regulatory reporting
– Adequacy of loan loss reserve
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Characteristics of Loan Review
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Responsibilities defined
Explicit description and definitions
Capacity for judgment
Freedom to communicate
Performed by skilled personnel
Credit Grading Systems
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Problem Loans – quarterly
Large exposures – quarterly
Sampling size
Performed by
– Loan Officer
– Independent credit review specialist
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Credit Grading Systems (continued)
• Assessment independent of the lending
function preferred
• If loan officer used for grading, review by:
– Peers, superiors, or loan committee
– Independent department
– External third party consultant
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Risk Rating Elements
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Scope of reviews
Depth of reviews
Review of findings
Follow-up – correction action
Report Distribution
Loans to Directors, Officers,
Employees, and Shareholders
• Can be the best loans
• Can be the worst loans
• Best Practices
– No preferential treatment
– Same terms as other borrowers
– Annual reporting to the Board and Supervisor
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Fraud by Insiders
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Also called White collar crime
Results from weak internal controls
Dominant insider misuses position
Fails to disclose interests
Diverts bank assets and income
Accepts bribes and gratuities
Controlling Abuse
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Regular internal/external audits
Review of all insider transactions
Follow-up on exceptions
Pre-screening of new officers and directors
Follow the money
Examiner Conflict of Interests
• Purpose – ensure integrity and objectivity
• Restrictions
– No gifts or gratuities from any bank
– Reporting of indebtedness
– For EIC, 18 month window for employment
– May not participate in an examination where
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A family member employed
A loan from
Previous employment held
Other