Managing Problem Assets

If you make loans, you will encounter problem loans.  No lender intends to make a problem loan, lending institutions must anticipate having some level of problem loans and loan losses. Problem Loans are simply a by-product of the business of lending. While there are different strategies for managing and resolving problem loans, the underlying problem is the same – a lack of cash flow to pay their creditors and operating costs. Resolving problems can be expensive and difficult, and managing problem loans properly is a complex, time-consuming task, frequently requiring specialized knowledge and expertise in, credit analysis, bankruptcy and security laws, as well as negotiating. The overriding objective in managing problem loans is to improve the lender’s position enough to get repaid in full.

Delinquencies and losses are rising as the business cycle rolls through this period of higher interest rates and higher operating expenses cut into borrower cash flows and as tightening loan requirements reduces credit availability. Finding and resolving a problem loan in its early stages is much easier now than later. This session will help you diagnose and cure now.

Topics covered in this session

 Preventive maintenance

• Red flags of problem loans
• Portfolio signals, e.g., declining communication from borrower
• Slowdown in financial information
• Deterioration in risk ratings
• Covenant breaches
• Overdrafts
• Delinquency

Problem asset policy

• When to transfer problem loans to problem asset management, e.g., criticized and classified assets
• Non-accrual
• Charge-off
• OREO asset management

Problem asset management 

• Process of default
• Judgment
• Foreclosure
• Possession
• OREO
• Reporting
• Disposal
• Negotiation issues and tips