What Is a Loan Committee?

Kenneth W. Michael Wills

Banks often have a group of individuals called a loan committee to handle and make decisions on loan requests that fall outside the authority of the bank’s loan officer or require special attention; often such loans are commercial requests. Made up of senior managers or executives, experienced finance managers and sometimes external leaders, the committee will review such requests and relevant data in relation to those requests and determine how to best proceed. Ensuring alignment with standard lending policy and evaluating risk exposure, the lending committee will then determine whether to extend such loans or deny them. Assuming standard criteria is in order, risk exposure will often have more to do with economic trends at the time of such loan requests as well as the overall perception of the requestor’s industry. Other responsibilities may include the review of credit on maturing loans and directing collective efforts against past-due loans.

A loan committee handles all bank loan requests outside of a loan officer's authority.
A loan committee handles all bank loan requests outside of a loan officer's authority.

Part of the action involved with carrying out its duties, the loan committee will review and analyze financial statements, credit statements and other associated data required for proper attendance to loan requests. Review of the bank’s loan statutory obligations and lending policy is part of this process to ensure the loan request satisfies both criteria. The loan committee may also pull information related to the applicant's industry and analyze that information for potential risks inherent to the loan request. Upon review, the committee will vote, and if unanimous will then sign off on the loan for disbursal.

A loan committee might deny a loan request.
A loan committee might deny a loan request.

Aside from the primary function of reviewing loan requests and initiating action against mature or past-due loan, the lending committee often holds other important responsibilities as well. Compliance is a major concern for banks, and a lending policy must be in accordance with regulating authorities. Often, the loan committee will conduct periodic reviews to ensure regulatory compliance of bank policy. Additionally, the committee will also ensure all regulations are followed in the approval and disbursement of previous loans.

Furthermore, the loan committee will also review all loan reports and all management reports relating to the lending function. Attending to legal concerns related to the lending function is also another concern, and this includes handling all aspects of property involved in bankruptcy and receivership. As well, the committee will usually conduct a comprehensive review of all marketing materials related to lending, to both ensure effectiveness and legal compliance. Overall, the committee is responsible for high-value loans and attending to underwriting, operations and profitability of the lending function on its financial institution.

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