Development Best Practices in Credit Union Supervision: Examination Process - Lending, Collections and Allowance for Loan Loss Review

This paper examines the different aspects of the appraisal of the loan portfolio of a credit union. It discusses:

• Objective of the loan review;
• Scope of the loan review. The examiner has to select a sample from the loan trial balance that includes loans that are charged off, delinquent, current and new, large, etc;
• Loan policy review;
• Loan review work paper;
• Loan documentation review;
• Lending practices review. Here, the examiner determines whether:
  • Adequate borrower information is obtained,
  • The loan officer has adequately assessed the borrower's ability to repay the loan,
  • Loan officers have verified the pertinent borrower information,
  • Collateral is owned or titled in the name of the borrower,
  • The board has established reasonable credit guidelines,
  • Segregation of duties exists,
  • Board or loan officer actions are within their written authority,
  • Loan interest rates are competitive within the market,
  • Variable interest rates adjust accordingly;
• Signs of warning that may indicate existing or potential problems;
• Loan deficiencies;
• Determining the adequacy of the allowance for the loan loss account.

The paper also discusses:

• The objectives of the collections review;
• Collections policy;
• Collection procedures review.