Credit Audit is an independent examination of the credit function of a bank or financial institution. It evaluates the quality of the credit appraisal process, documentation standards, post-sanction monitoring and recovery mechanisms to assess the effectiveness of credit risk management.
Scope of Credit Audit
The review typically includes:
Examination of credit appraisal notes and sanction processes
Verification of loan documentation and security creation
Assessment of post-disbursement monitoring and follow-up
Review of asset classification and provisioning
Evaluation of recovery and resolution processes
Key Focus Areas
Particular attention is given to:
Large and stressed exposures
Compliance with internal credit policy and regulatory guidelines
Quality of collateral and valuation
Early warning signals and monitoring systems
Reporting
The credit audit report highlights process gaps, documentation deficiencies and risk management observations for the consideration of management and the board.