Significance of Bank Loan Audits

Bank is a financial house. It plays an ideal role in money circulation and earns profit through interest on principle loan. Bank provides various kind of loan to an individual, a business house, community for various purposes. Interest rates are variable and specific to the purpose. Loan policies vary from bank to bank and are subjected to changes. Lot of factors is involved in the process of working with various kind of loan. In every kind of financial transaction banks are involved. By any account banks fail to operate and close down ultimately it becomes an issue of concern for government. This situation become a possibility when a bank provides huge amount of loan in various account but fail to realize the interest. This affects the financial health of bank. This arises out of faulty loan policy of bank and irregularities in loan operation. To have a right kind of check on such major issue bank policies are subjected to suitable review and bank loan activities are suitably audited by professional auditors. Such kind of auditors has the right kind of competency in evaluating the entire loan activities of bank. Loan review audit process begins by evaluating bank’s lending policies, procedures, and quality control activities. To look for significant credit quality issues that require bank management attention is one of the important functions of a bank loan auditor.

There are innumerable factors involved in the credit assessment such as loan policies and procedure, loan authority and the approval process, loan underwriting and the credit analysis function, loan documentation standards and systems, internal loan grading systems, delinquency reporting and collection efforts. Loan reviews are strong risk management tools for banks. Based on such audit result banks initiate for sampling loan portfolio with the total guidance from bank loan auditor. Potential problem generating loans are identified. Review of loans on the bank watch list are fully analyzed with regard to renewals, extension, and delinquencies to determine if any trend in these areas are cause of concern.

Bank loan audit is a most essential need and carried out periodically. This brings to focus many intricate issues in loan process and extend right kind of help to bank management to develop plan and strategy that are appropriate to the situation. A bank loan auditor remains fully attached to bank management in the entire process of problem identification and in formulating action plan to improve upon bank policy and  loan mechanism. Bank loan audit brings in time check on all loan process before the situation goes out of control and threatened the profitability.