CEIS offers services to review portfolios that are to be acquired. We at CEIS make sure that portfolio acquisition review is given high priority.
When the experienced executives from out company start reviewing the portfolio, the major focus is on to test the following things:
a) Sufficiency and reliability of the credit risk rating system
b) Loan approval and monitoring
c) Effectiveness of loan and credit administration
d) Adequacy of the loan loss reserve
The company is make sure that acquisition review is dealt with the help of highest resources and a committed team is there for a quick turnaround time in the due diligence assignment.
The major task of the executives is to prepare a report that details the findings of the review that entails a summary of observations and conclusions. These observations are supported by a written report on each loan received.
When a client makes a request for conducting the review of her portfolio, she is indeed in the hands of sensitive and sensible financial experts. At CEIS, our professionals exactly know the importance of understanding the underlying credit quality of the specific portfolio. They also make sure to understand whether there are adequate reserves for the target portfolio before reaching any specific agreement.
Why our financial experts stress on understanding this is very simple. When we understand these basic things of your portfolio, it helps institutions determine appropriate pricing. It also helps them understand whether transaction can withstand credit risks.
Irrespective of what you are planning to purchase – an entire organization or a few loans- the awareness of the potential credit risk is important in a sense that it is going to be jotted down onto the balance sheet.
Since there are many professional companies that offer services related to portfolio acquisition review, and loan portfolio due diligence, one needs to be careful in choosing one’s company. You need to check whether they are committed and sensitive enough to understand your financial troubles and are capable enough to come up with concrete solutions.
At CEIS, we give very high priority to review request because of its sheer financial urgency and importance. Having received the request, we decide the scope of the review with the client and it is structured in a way that at the end of the on-site review, the client has a preliminary oral report ready. A written report is dispatched to the client within days of full completion of on-site review.
Find more information at http://www.ceisreview.com/ or call us on 888-967-7380
Extending its journey in the realm of providing professional services to banks and other financial institutions, CEIS Review Inc has now come up with another of its ambitious services – Loan Review.
The company which was set up in 1989 is not affiliated with any accounting firm or bank holding company. At the heart of its entire system lies independent loan review service. The company also offers services related to allowance for loan and lease losses, ALLL Methodology and Validation among others.
In its statement, the company emphasizes the credibility and the authenticity of its services on the grounds of having some of the best minds on the board. CEIS loan review programs are the results of relentless and passionate work done by the seasoned senior lenders who have worked in the industry on top positions. The markets they were associated with include regional banks, community banks, and commercial finance companies.
Features of the program:
• Customized and software assisted programs
• Review over a year of almost 75% of the client’s average outstanding loans and letters of credit
• Reviews are divided into stipulated intervals
• The scheduled review includes data update and remarks
• Review of newly criticized or classified loans, delinquencies, non-accruals
Our executives also review restructured transactions, new and renewed commitments since the last review.
Benefits of the program:
• Adequacy of the allowance for loan and lease losses gets tested
• Information regarding organization’s lending policies and procedures and overall lending process gets registered
What makes CEIS stand out among its rivals is that it is not just satisfied with the study and review of documents. It does allocate resources to even carry out and complete on-site review without any delay. In order to make the clients comfortable, a prior e-mail is sent requesting the necessary general and specific information.
Certain information has been asked prior whereas some other is requested to make available on arrival of our executives. Our review begins with criticized and classified loans, to remaining delinquent and non-accrual accounts and lastly to other accounts.
The benefit of on-site review is that it makes it possible for our executives to communicate orally and in person. This then gives chance to discuss things over the table and take view of the observations together. After the entire process, the final report needs to be completed within four weeks of completing the on-site review.
Thanks to Harry Markowitz – a renowned Noble Prize winner in economics – that the world now has become familiar with the theory of portfolio. It was Markowitz who suggested that investors can indeed secure their investments by leveraging different price movements. His was the goal of diversification.
Different Portfolio Management Techniques
There are two major techniques to manage the portfolio – aggressive and passive. Interesting aspect of both these techniques is that they are not dependent upon the market knowledge. But, they are rather dependent upon diversification of assets, duration, industry, capitalization and cash cycles. The only difference between the two strategies is that passive expects the return equal to the market assuming that market is highly efficient, whereas aggressive technique aims for a return above the market assuming the inefficiency of the market.
Portfolio Stress Testing
Stress testing per se is a system to test the stability of a particular system, in this case the system of portfolio of the investor. This type of testing is employed to check whether any particular system can work inspite of abnormal conditions. In other words, it checks the limits of the system and the outcome. Generally, when it comes to portfolio stress testing, points to be considered include: how the portfolio reacts in case of equity markets crash, GDP fall, change in interest rates etc. The experts decide a certain limit for this test and that is how it is carried out.
CRE Stress Testing
Last year, the he Office of the Comptroller of the Currency, U.S., released the guidance for Community Bank Stress Testing. It gives the institution an example of a kind of a stress test framework that can be used to test the stress of commercial real estate investment. The purpose of this guidance is to make the institutions analyze their own risk appetite and tolerance. By this process, they can assess the possible impact of the difficult situations as well.
Benefits of CRE Stress Testing
One of the major benefits is that it prepares the institutions to cope up with any emergency. It also boosts up the confidence and raises the level of awareness about the possibility of the adverse situations. This consequently not only helps the institution plan in-advance but also maintain the necessary capital flows.
Methods of Stress Testing
This process does not need to be complicated always. It can range from a simple excel sheet analysis to a bit more advanced model. Methods therefore should depend upon the size and the risk of the portfolio in question and the complexity of the bank.
Find more information at http://www.ceisreview.com/ or call us on 888-967-7380
In order to understand what credit/loan grading system is and how and why it works, let us first understand what is loan loss reserve and what is loan loss reserve methodology, how and why it functions.
Loan Loss Reserve
Loan loss reserve also known as allowance for loan losses in defined as a contra-asset account on a bank’s balance sheet which is netted against gross loans. Usually, the level of loan loss reserve rises each quarter by the amount of the loan loss provision. This level gets reduces by the level of net charge-offs.
Calculation of Loan Loss Reserve
Essentially, the calculation of loan loss reserve is associated with the bank’s attempt or its preparedness to cope up with the insolvency. The figure calculated is basically a figure that shows bank’s capacity to cover losses on its outstanding loans. Hence, it can be either positive or negative.
If the loans go wrong, they are charged off and hence bank removes them from their positive assert portfolio. The following action is the subtraction of the loan’s book value from the loan loss reserve account total. In case of collateralized loan, in order to replenish the loan loss reserves, collateral is liquidated and deposited into the loan loss reserve account.
Establishing Reserve Allocations
Having understood what loan reserves are and how they work, it is quite a task for the institutions to set up an exact or appropriate loan loss reserve. One has to be very discretionary and guided by expert credit judgment. There are however, many professional companies that provide such services and make it easier for the banks.
Things to consider while setting up Reserve Allocations
The experts or the expert agency that undertake the task of setting up adequate loan reserves must take into consideration bank’s historical experience, current economic conditions and its relationship with the customers. There is nothing wrong in applying the regulatory guidance in the process, but it is advised to avoid accounting approach. The main reason why accounting approach should be avoided is because it inhibits bank management’s expertise to determine loan loss reserve levels.
The purpose of any Credit Grading System
The most obvious purpose of setting up any such system or method that sets up the loan reserves is that it has to be functional. Also, the potential benefits should be far greater and deeper than the costs of measurement. It is equally important that the results are intelligible to all including stakeholders, management, regulators and investors.
The term credit review is self explanatory. It aims to check whether the credit allocated to the client followed lender’s written credit standards. It also checks its compliance with banking regulations. If any document or signature is missing, it can be immediately corrected by the lending officer so that there is no possibility of any loss or degradation in credit quality.
Reasons of credit analysis
According to Investopedia, financial institutions periodically check the credit extensions to verify that the extension was in accordance with the rules. It also scrutinizes whether the borrower is steady and sound enough to deserve the extension period. In fact, credit reviews are considered to be the first step taken my credit repair agencies to thoroughly examine what steps they would need to take in order to help someone bail out from the financial crisis.
Credit review techniques
The major techniques to carry out analysis of the credit include ratio and trend analysis, projections creations, thorough analysis of cash flows. There are other factors that too are taken into consideration of this analysis. They are collateral and other sources of repayment, credit history and management ability. The analysis is done to predict if a borrower may default on its debts as well as the impact of losses in case of default. Credit analysis by financial market participants reflect credit spreads. Credit spreads are the difference in interest rates between theoretically “risk-free” investments.
Things considered for approving loans
Along with the above discussed factors, another factor to be considered by financial institutions for granting the credit is the cash flow of the borrower. The debt service coverage ratio is very crucial parameter to examine the repayment ability. Typical commercial bankers look for 120 percent as debt service coverage. To say it in simpler words, debt service coverage ratio needs to be 1.2 or higher to make sure that there is an extra support system and a business can manage its debt needs.
Benefits of credit analysis
One of the most important benefits of getting the credit analysis done is preparing to be in control of your finances. It educates a borrower about the present situation of her credit and helps find a way to manage it. The professionals conducting this analysis offer a solution that works and bail the customer out of their debt troubles. The help of these professionals also eliminates the need to remain present in the negotiations for the borrower saving time, energy and money. So, if you are a borrower facing some financial crunch, to get the credit review done would be the best solution to your troubles.
Find more information at http://www.ceisreview.com/ or call us on 888-967-7380
