Loan Review As an Enterprise Risk Tool Post-COVID-19

Loan review can be a critical component of a banking institution’s enterprise risk management (ERM) framework. A loan review’s primary function is to validate the underwriting, servicing and current risk grade of the borrower and is an essential function for all institutions in managing credit risk with their loan portfolio in accordance with its strategic planning and risk appetite.

An effective loan review process and function serves to satisfy management with multiple components of an ERM process, inclusive of risk identification, risk assessment, risk monitoring and reporting, and validation. As an independent function, loan review is designed to provide the board with an objective assessment of portfolio management and credit quality, as well as performing an effective challenge with regards to risk grade changes. Collaboration and communication across the key stakeholders within a loan review is critical to a sustainable process and improving the risk culture of the institution. Loan review personnel should have a direct pipeline and access to lenders, as well as the appraisal reviewers, but they also should make sure that regional credit officers are in the feedback / reporting loop on any loan review findings.