Leveraged Lending

Problem Loan Management

Banks should formulate individual action plans with clear and quantifiable objectives and timeframes for adversely rated and other high-risk borrowers whose operating performance departs significantly from planned cash flows, asset sales, collateral values, or other important targets. Actions may include working with the borrower for an orderly resolution while preserving the bank’s interests, sale of the loan in the secondary market, and liquidation. Examiners and bankers need to ensure problem credits are reviewed regularly for risk rating accuracy, accrual status, recognition of impairment through specific allocations, and charge-offs.

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