Loan Loss Reserve Methodology And Validation

CEIS reviews existing loan loss reserve methodology for conformance to regulatory guidelines, reasonableness in establishing the reserve allocations, and appropriate statement in the bank’s loan policy.

We will analyze the allocations that are applied in the client’s periodic assessment of loan loss reserves. We will develop a framework / format / model that can be periodically updated by the client.

Briefly, CEIS analyzes the migration of loan grades and the migration to loss over the last three to five years (and perhaps prior). We will review over that period the composition of the portfolio by way of concentrations, loan types, industry and loan grades; delinquency and non-accrual levels and trends, off balance sheet commitments, loss experience of client’s “peers”, direction of risks in the portfolio and in the client’s primary market, and other factors relevant to the client portfolio profile and location. We will also consider the timeliness and accuracy of the internal loan grading system.More »