F INANCIAL S ERVICES V OLUNTEER C ORPS
description
Transcript of F INANCIAL S ERVICES V OLUNTEER C ORPS
![Page 1: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/1.jpg)
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
![Page 2: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/2.jpg)
2
Credit Risk Management
• Do Loans Comply with the Loan Policy?- Approval process- Collateral valuation- Loan limits- Loan concentrations
IndustryGeographicLoan types
![Page 3: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/3.jpg)
3
Lending Controls
• Lending Process
• Key Information
![Page 4: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/4.jpg)
4
Lending Process
• Request• Presentation• Approval• Documentation• Funding• Review• Monitoring
![Page 5: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/5.jpg)
5
Key Information
• Amount• Purpose• Yield• Term• Collateral• Agreement / Documentation• Repayment schedule
![Page 6: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/6.jpg)
6
Sampling of Loan files
• Purpose• Disposition of proceeds• Repayment schedule• Financial statements• Memoranda of discussions with
borrower
![Page 7: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/7.jpg)
7
Problem Loans
• Definition – past due or restructured• Action plan for remediation• Loan loss reserve allocation• Identification and Migration analysis• What did management learn?
![Page 8: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/8.jpg)
8
Does the Board Know
• Total credit exposure• Lending activities• New credit extensions• Overdrafts• Past due loans• Watch list loans• Insider loans• Anticipated charge-offs
![Page 9: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/9.jpg)
9
Internal Loan Review
• 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
![Page 10: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/10.jpg)
10
Loan Review – Loan Rating Objectives
• 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
![Page 11: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/11.jpg)
11
Characteristics of Loan Review
• Responsibilities defined• Explicit description and definitions• Capacity for judgment• Freedom to communicate• Performed by skilled personnel
![Page 12: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/12.jpg)
12
Credit Grading Systems
• Problem Loans – quarterly• Large exposures – quarterly• Sampling size• Performed by
– Loan Officer– Independent credit review specialist
![Page 13: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/13.jpg)
13
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
![Page 14: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/14.jpg)
14
Risk Rating Elements
• Scope of reviews• Depth of reviews• Review of findings• Follow-up – correction action• Report Distribution
![Page 15: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/15.jpg)
15
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
![Page 16: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/16.jpg)
16
Fraud by Insiders
• 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
![Page 17: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/17.jpg)
17
Controlling Abuse
• Regular internal/external audits• Review of all insider transactions• Follow-up on exceptions• Pre-screening of new officers and
directors• Follow the money
![Page 18: F INANCIAL S ERVICES V OLUNTEER C ORPS](https://reader036.fdocuments.us/reader036/viewer/2022070412/56814b58550346895db8504a/html5/thumbnails/18.jpg)
18
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
• A family member employed• A loan from• Previous employment held• Other