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The loan review process has become more complex in recent years as institutions seek to improve operating efficiencies as well as asset quality. Oversight work of the committees has increased as institutions comply with new regulations such as Basel II and the Sarbanes-Oxley Act.
At many institutions, the loan review function contributes to enterprise-wide risk management by identifying risks and communicating concerns to the appropriate risk management teams.
In a recent RMA audioconference, three senior credit review executives discussed how their loan review functions are organized and how they create solutions that improve their institutions' risk profile.
Loan Review at Bank of America
David A. Lewis, SVP and credit review executive, Bank of America, said credit review at his institution resides in a central risk management organization, called Enterprise Credit Risk, which comprises the following functions:
* Asset quality reporting.
* Reserves methodology.
* Central loan policy.
* Portfolio analysis.
* A team that is designing, building, and implementing Bank of America's risk-rating scorecards for commercial credits.
* Credit review.
"We work together to create solutions that improve the risk profile of our company," explained Lewis. "Our loan and lease outstandings at Bank of America year-end were $522 billion, of which $194 billion is commercial and $328 billion is consumer.
Credit Review has a staff of 74, organized by line of business. "Credit Review teams are assigned to each of the major lines-of-business. The leaders of those teams communicate regularly with executives in both the line and credit risk management functions. Within each of those teams, associates are divided between those that spend full time monitoring and those that spend full time in the examining process. They work together to identify credit issues and drive solutions for those respective lines of business."
Loan Review at Wachovia Corporation
Robert L. Shotkus, SVP and manager of Commercial Credit Risk Review, Wachovia Corporation, said his group is part of the credit risk management structure, reporting to a risk committee of the board of directors and on a dotted line to Wachovia's chief risk officer. Under Credit Risk Management at Wachovia are the following groups:
* Commercial Credit Risk Review.
* Consumer Credit Risk Review.
* Portfolio Management.
* Allowance Management Reporting.
* Special Assets (for the general bank).
Shotkus's loan review team also reviews nonloan financial activity such as investments, assets held for sale, and treasury activities. The reviews focus on both asset quality and credit processes.
Wachovia has roughly $224 billion in loans, 41% of which is consumer loans. Of the commercial portfolio, 15% is commercial real estate and 44% is commercial, including its small-business-banking portfolio.
The 46 staff members assigned to the commercial side work in offices in Philadelphia, Jacksonville, and Charlotte. The seven staff members assigned to the consumer side work in Charlotte.
Loan Review at Bank of Hawaii
Mary Weisman, EVP and manager, Bank of Hawaii, said her institution ended the year with about $5.8 billion in average loan outstandings, of which about 35% represents its commercial book and 65% retail--a major shift in portfolio distribution from about five years ago. She reports on a dotted line to the chief risk officer.
"Our Risk Group includes internal audit, risk management, wholesale and retail credit, and special assets," said Weisman, who reports directly to the Audit Committee of the board of directors. "We cover all credit-related activities within the organization, including commercial and retail, and any nonloan reviews that might be necessary.
"Our staff of five examiners includes a commercial review manager and team and a retail review manager. We have responsibility for reserves analysis, and one staff member who is dedicated to completing the reserves analysis on a quarterly basis. We address both asset quality reviews as well as credit processes."
Recent Changes in the Loan Review Process
Lewis and Shotkus said the …