Credit Risk Review

Loan or Credit Review functions are a board of directors’ independent eyes and ears for understanding whether credit policies and processes are functioning as intended and effectively, and whether risks are within established tolerances. No other bank risk process receives more scrutiny from regulators or from internal control functions. Sustained inaccuracies with risk ratings and regulatory credit classifications will lead to regulatory distrust of a bank's financial statements and the competence of its management.

Promontory evaluates loan review and risk rating processes and practices to determine if they are consistent with regulatory classification standards and borrower performance and creditworthiness, all of which are critical factors in the measurement of overall asset quality, the allowance for loan and lease losses (ALLL), and capital adequacy. Promontory's experts have unparalleled experience in evaluating the quality of individual loans and assessing the timeliness and accuracy of risk identification and ratings. Most of the team have at least twenty years—and many have more than thirty years—of experience in credit risk evaluation and management.

Representative Engagements

Promontory conducted a targeted assessment for a boutique bank to determine the accuracy and timeliness of risk identification and rating accuracy relative to internal risk rating system requirements and regulatory classification definitions, including loan accounting designation decisions such as nonaccrual, individual loan impairment reserves, and troubled debt restructuring. The results were reported directly to the CEO and the Board of Directors. In addition to identification and rating accuracy, our review covered the quality of credit administration and risk management of the individual credits.
Promontory conducted a comprehensive assessment of the effectiveness of a mid-sized regional lender’s internal credit risk review function. The review covered the risk assessment process, review planning, scoping and frequency, review conduct and communication, and documentation and reporting. Based on this assessment, we assisted the bank in developing a plan for improving its loan review function, strengthening communications with loan review constituencies, and enhancing its staff.
Promontory conducted, as a third-party service provider, independent credit reviews of the commercial and commercial real estate portfolios of a regional thrift. The reviews covered all aspects of risk identification and credit risk administration and management.
Promontory annually conducts an assessment of the effectiveness and the outsourced credit risk review services of a super-regional financial institution. These assessments also cover third-party risk management, as required by regulators.
Promontory conducted a major review of a super-regional bank’s commercial loan book. We looked at a statistical and judgmental sample of over 600 loan files of both commercial real estate loans and commercial and industrial loans to determine the accuracy and efficacy of the bank’s internal risk ratings. Staffed by senior regulatory credit experts, our team evaluated the loans, according to regulatory standards and the bank’s own rating definitions, and provided a detailed report to management. Promontory also looked at the bank’s internal risk rating process to determine the cause of risk rating departures.
Promontory assisted a community bank in determining the scale of internal credit risk rating inaccuracies after regulatory criticism. Using expert judgment, Promontory reviewed hundreds of commercial loan files against regulatory standards for risk ratings to determine the accuracy of the bank’s system. Over the course of three months, our team worked with the bank to improve rating definitions, guidelines for ratings applications, and incorporation of our review into the allowance for loan and lease losses. Our review enabled the bank to determine the size of the loss inherent in its portfolio and determine the best way to deal with that loss.
Promontory evaluated a mid-sized regional thrift’s internal risk rating system and credit risk governance through a process review and a file review. We interviewed senior and line management and took a sample of commercial loans. We sat in on credit committees and assisted the bank in reviewing problem credits. After a thorough review, we made recommendations to management on improvements to their existing practices and procedures.

Credit Risk Review

Representative Engagements

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