Policy and procedures importance of updating

24-Sep-2017 08:18

Policies and procedures should serve as a framework for all major credit decisions and actions, cover all material aspects of credit risk, and reflect the complexity of the activities in which a bank engages.

While risk is inevitable, banks can mitigate credit risk through the development of and adherence to effective loan policies and procedures.

Selling or participating out portions of loans to accommodate the credit needs of customers can promote goodwill and may enable a bank to retain customers who might otherwise seek credit elsewhere.

the loan policy should appropriately cover the basic elements of these activities (limits, underwriting requirements, documentation, and so forth).

Each loan type listed in the box has numerous loan product subcategories.

Community banks offer a diverse range of loan products, and this list is by no means all-inclusive.

A well-written and descriptive loan policy is the cornerstone of a sound lending function, and a bank’s board of directors is ultimately responsible for framing the loan policies to address the inherent and residual risks (i.e., those risks that remain even after sound internal controls have been implemented) in the lending business lines.

It is important to note that a policy differs from procedures in that it sets forth the plan, guiding principles, and framework for decisions.A bank may choose to enter into participations if it is unable to generate sufficient loan demand independently.In this case, partnering with another strong bank operating in a healthier market could help generate additional assets and income.The policy should also state that engaging in the financing of illegal or illicit activities is unacceptable.

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Policies and procedures need to be continually evaluated and updated.Procedures, on the other hand, establish methods and steps to perform tasks.

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