毕博上海银行咨询Final Deliverables LoanRvw112699.doc

HANVIT BANKRISKREVIEWPROCESS11/16/99Prepared by KPMG, LLPThis Document is Proprietary and Confidential to Hanvit Bank and KPMG, LLP. Unauthorized duplication is prohibited.TABLE OF CONTENTSTHE HANVIT BANK RISK REVIEW FUNCTION4Overview4Objectives of Hanvit Bank Risk Review5SUMMARY OF ELEMENTS OF THE RISK REVIEW FUNCTION6Goals of Hanvit Bank Risk Review6Risk Review Personnel7Qualifications7Independence7Characteristics of Risk Review7Frequency of Risk Reviews7Scope of Risk Reviews8Depth of Reviews8Review of Findings and Follow-Up9Workpaper and Report Distribution9Risk Review in Anticipation of External Examinations9Information Systems Support9Risk Review Distinguished from Credit Review10Sampling Methods For Risk Review10Risk Review as a Pipeline of Loans for Workout or Problem Loan Departments11DEPARTMENT COMPOSITION13Organization & Reporting Structure13Interface with Board Of Directors13Descriptions of Proposed Positions - Functions, Duties, Responsibilities13EXAMINATIONS BY THE HANVIT BANK RISK REVIEW FUNCTION16Risk Review Process16Regular Risk Reviews17Objective of Regular Risk Reviews17Loans Subject to Regular Risk Review17Scheduling of Regular Risk Reviews18Tasks Performed in Risk Reviews18Documents used in Regular Risk Review20Examination of Credit Files21Loan Administration Processes Subject to Risk Review21Other Risk Reviews23Portfolio Risk Reviews23Special Situation Risk Reviews24Review of Underlimit Loans24Review of Third Party Loans or “Dealer Paper”25Review of Other Loans25Documentation Examinations27FINDINGS, REPORTS, REVIEW AND APPEAL PROCESS28Reporting29INTERACTION WITH OTHER DEPARTMENTS OF HANVIT BANK31Interaction of Risk Review with the Asset Management Unit31Interaction of Risk Review with Credit Review31Interaction of Risk Review with the Audit Department31APPENDICES33Appendix 1 - Importance Of Independent Risk Review & Risk Management Functions33Appendix 2 - Suggested Topics For Inclusion In Risk Review Analysis40Appendix 3 - Loan Problems To Be Specifically Reviewed50Appendix 4 - Summary of Risk Review Processes52Appendix 5 - Minimum Financial Analysis Review Factors53Appendix 6 - Minimum Documentation To Be Included In Risk Review54Appendix 7 - Recommended Technology Support55Appendix 8 Factors to Determining Loans for Transfer to Asset Management Unit56Appendix 9 - Review Of Supplemental Readings On Risk Review Topic60Appendix 10 - Summary Of Selected Staff Positions63Risk Review Officers63Credit Review Officers63Business Analysts63Branch Loan Officers64Relationship Managers64Appendix 11 - Risk Review Outline (Previously Submitted)65Appendix 12 - Risk Review Function Recommendations (Previously Submitted)68Appendix 13 Early Warning Signals72THE HANVIT BANK RISK REVIEW FUNCTIONNOTE: In discussions with Jeong-Ja Chang, General Manager of the Loan Review Department, it was determined that the team would not be restricted to reviewing commercial loans, but would have responsibility for reviewing all credits including capital market items. Accordingly at Ms. Changs suggestion, the name of the function was changed to Risk Review to evidence the broader scope of the departments examination work.OverviewAt Hanvit Bank, the Risk Review function will refer principally to responsibilities assigned to a special department whose responsibility will be to find and correct problems with commercial loan approval and administration. The goal is to prevent small problems from becoming large ones and to allow the bank to be properly prepared for examinations by regulatory authorities.Risk Review is a new function to Hanvit Bank since January 1999. It will act as the “internal affairs” department of the bank to find and resolve quality and policy issues in the lending and credit function. Risk Review should have the authority to review activities of various departments such as headquarters and branch lending, credit analysis and review (underwriting), loan administration, problem loan workout, and other appropriate areas. Responsibilities will include reviewing initial credit analysis, approval and ratings, ensuring ratings grade changes are made when needed, and compiling information necessary to assess the soundness of Hanvit Bank loans. Risk Review will also providing appropriate information to the departments responsible for determination of the adequacy of the Allowance for Loan and Lease Losses (ALLL). The initiation of an independent Risk Review function will assist the bank in monitoring loan activity to be sure that proper policy is being implemented. Violations of loan policy should be immediately rectified. Continued violations should result in a suspension of lending authority, reassignment of responsible personnel to a non-lending position or in extreme situations, dismissal.Risk Review, now aligned with the Risk Management unit, must remain independent of the department responsible for loan production so that objective review of loan approval decisions and loan monitoring activities can be done. Please see Appendix 1 for a discussion on the independence of Risk Review and Risk Management. It is important to assure that Risk Review reports are sent directly to a high level committee of the Board of Directors. It is recommended that this be the Audit Committee of the Board.In performing the Risk Review function it will be essential that Risk Review personnel have the ability to find problems which may not be readily evident. To this end, a Query and Reporting tool has been recommended. This tool can also be used by auditors or review functions of other departments such as trading, investing, or FX, for Marketing, for Portfolio Reporting purposes, and for other departments. This will allow the Risk Review Officer (RRO) to find potential trouble spots in the loan portfolio. This tool will allow the RRO to find patterns of delinquencies or other problems by industry, branch office, RM, geography and many other factors. This would then lead to specific review of the situation to determine the cause of problems and recommended solutions. Objectives of Hanvit Bank Risk ReviewThe complexity and scope of the Risk Review function will vary based upon the loans and borrower accounts being reviewed. It will also vary based on the nature of the suspected problems. To be effective, the Hanvit Bank Risk Review function is generally designed to address the following objectives: · To promptly identify loans with credit weaknesses so that timely action can be taken to minimize credit loss;· Evaluate the portfolio for credit quality, performance, collectibility, and collateral sufficiency;· To identify relevant trends affecting the collectibility of the loan portfolio and isolate potential problem areas;· To evaluate the activities of lending personnel to assure that bank officers and staff are operating in conformance with established guidelines; · To assess the adequacy of, and adherence to, loan policies and procedures, and to monitor compliance with relevant governmental or banking supervisory agency laws and regulations; · Assure that lending policies, practices, procedures, and internal controls for commercial and industrial loans are adequate,· To provide essential information for determining the adequacy of the ALLL; · To provide the board of directors and senior management with an objective assessment of the overall portfolio quality; and · To provide management with information related to credit quality that can be used for financial and regulatory reporting purposes.Hanvit Bank should maintain a written Risk Review policy that is reviewed and approved at least annually by the board of directors. Policy guidelines should include a written description of the overall borrower and facility risk grading process, and establish responsibilities for the various Risk Review functions. The policy will generally address the following items: · Qualifications of Risk Review personnel,· Independence of Risk Review personnel,· Frequency, Scope and Depth of reviews,· Risk Rating,· Authority to require corrective action,· Review of findings and follow-up; and · Workpaper and report distribution,· Reporting procedures to the Audit Committee of the Board of Directors.SUMMARY OF ELEMENTS OF THE RISK REVIEW FUNCTIONVarious elements of the Hanvit Bank Risk Review function are summarized below. Additional detail is provided in this document.Goals of Hanvit Bank Risk ReviewLoan Policy & Procedures Monitoring· Provide the checks and balances needed to ensure adherence to the bank's credit policies and standards,· Serve as a quality control of the bank's credit process,· Monitor for credit policy exceptions and noncompliance issues,· Monitor for in-house limit and legal lending limit exceptions.Risk Grading & Portfolio Management Monitoring· Ensure that the risk grading system is adequate and objective,· Establish measurements for assessing that risk grading of the loan portfolio is accurate,· Evaluate trends in the loan portfolio,· Provide essential information to assist in determining the adequacy of the Allowance for Loan and Lease Losses (ALLL),· Provide the board of directors and senior management with an objective assessment of the overall portfolio quality.Initiation of Corrective Actions· Promptly identify loans with credit weaknesses so that timely action can be taken to minimize credit loss,· Initiate corrective action when policies, procedures, objectives, or internal controls are deficient or when violations of laws, regulations or policies by lending personnel have been noted,· Identify relevant trends affecting the collectibility of the loan portfolio and isolate potential problem areas.Provide Information for Regulatory Reporting & Banking Examinations· Provide management with information related to credit quality that can be used for financial and regulatory reporting purposes· Assess credits according to the same standards as are practiced by Banking Examiners in order to better prepare the bank for forthcoming examinations or to take immediate corrective action to avoid adverse classifications of assets by Banking Examiners.Risk Review PersonnelRisk Review personnel should be experienced in commercial lending, and be independent of the departments which are responsible for producing new commercial loans.QualificationsPersonnel involved in the Risk Review function should be qualified based on a level of education, experience, and extent of formal training. They should be knowledgeable of both sound lending practices and Hanvit Bank's specific lending policies and guidelines. In addition, they should be knowledgeable of pertinent laws and regulations that affect lending activities. See Section “Descriptions of Proposed Positions - Functions, Duties, Responsibilities” for additional information on Position Duties and Training.IndependenceThe Risk Review function will provide a check and balance to the activities of the officers assigned to the business units or credit approval functions. Bank management must ensure that all significant loans should be reviewed by individuals that are not part of, or influenced by anyone associated with, the loan approval process. Hanvit Bank should establish and maintain a separate Risk Review department staffed by independent credit analysts. Members of senior management that are independent of the credit administration process, or a committee of outside directors, should be designated to fill the role of Risk Review Department management staff and advisory committees. Regardless of the line reporting structure, Risk Review personnel should report their findings directly to the board of directors or a committee thereof. Characteristics of Risk ReviewFrequency of Risk ReviewsThe frequency of Risk Reviews of specific credits, offices or personnel will depend on the size and quality of the credits being managed and the past history of the credit, office or staff person. The Risk Review function will provide feedback on the effectiveness of the lending process in identifying emerging problems. Normal Credit Reviews The Risk Review function works as a check and balance on the normal credit reviews which should be performed at least annually for all significant credits within the bank. by Credit Review Officers will be performed annually, at a time of loan renewal, or more frequently when factors indicate a potential for deteriorating credit quality or other reasons. During the course of the CRMS project, it was discovered that in many cases, loans are automatically renewed at a one (1) year maturity and also that in many cases, there are no principal reduction requirements during the tenor of the loan. This practice may be the result of competitive pressures but should be critically reviewed to determine whether such loans ultimately result in loss to the bank when the loan repayment is ultimately required. Periodic principal reductions are an essential element in determining the ongoing quality of the credit in question. The periodic Risk Reviews will be done randomly or on a scheduled basis depending on the nature of the credit and the circumstances surrounding the loan accounts. A significant initiative of the Risk Review function will be the accurate and timely identification of problem loans so that an accurate determination of the Allowance for Loan and Lease Losses (ALLL) can be made on a periodic basis.Scope of Risk ReviewsAll loans, regardless of size, quality or approving authority are subject to Risk Review. It is this ability to randomly choose loans for Risk Review, which is intended to keep all lending personnel alert to proper management of their loan accounts.Reviews will, at a minimum, cover all loans that are considered significant. The significance of the loan should be related to the approving authority. Loans to the largest corporate borrowers which are approved by committees are considered significant. Similarly, a loan to a small company which is in the upper range of the Branch Manager's delegated approval authority should be considered a significant loan. Hanvit Bank will also review smaller loans that present elevated risk characteristics such as credits that are delinquent, on non-accrual status, restructured, previously classified, or designated as special mention. Additionally, management will periodically review insider loans, recently renewed credits, or loans affected by common repayment factors, such as loans to management of corporate borrowers. The perc