Risk is an inherent part of any business operation. Without assuming risks, it is impossible for a business to achieve long-term profitability. Hoist Finance acquires and manages consumer loans and thereby actively exposes itself to credit risk. This is Hoist Finance’s core business, in which the Group has been successful for the past 20 years.
Hoist Finance defines risk as the possibility of a negative deviation from what is expected. This could be a deviation from expected earnings, liquidity levels or capitalisation. Ongoing risk management is a core activity in Hoist Finance and is fundamental for long-term profitability and stability.
Risk management framework
The goal of Hoist Finance’s risk management is to minimise negative variability in earnings and to secure the survival of the Group by maintaining sufficient capital and liquidity levels. This will create and maintain confidence in Hoist Finance amongst stakeholders, thereby achieving sustainable shareholder value.
To fulfil this goal, the Board of Directors has adopted a risk management framework comprised of, for example, policies and strategies for the company’s management, analysis, control and reporting of risks in day-to-day operations.
Because Hoist Finance’s core business and risk strategy is to generate revenue through controlled exposures to credit risk in the form of non-performing loans, we actively pursue this type of credit risk. Other types of risk, such as operational risks and market risks are undesirable but sometimes unavoidable. These risks are minimised as far as is economically justifiable.
Risk capacity (capital and liquidity buffers in place before critical levels are reached) is determined in order to ensure the survival of the Group. Capital risk capacity is the difference between actual capital levels and regulatory minimum levels and shows the capacity to absorb losses before critical levels are reached. Liquidity risk capacity is the size of the liquidity outflow Hoist Finance can manage without breaching regulatory minimum requirements.
The Board of Directors determines Hoist Finance’s risk appetite within the available risk capacity. By weighing potential returns against potential risks, the Board can decide on an appropriate risk and return level for the Group. Hoist Finance’s risk appetite then provides the basis for business decisions and risk limits, which are used in day-to-day business activities and in risk monitoring. The Group’s Risk Control function continuously monitors to ensure that Hoist Finance does not assume any risks that exceed the established risk appetite, risk capacity or limits.
Three lines of defence
Hoist Finance’s risk management is built on clearly defined goals, policies and guidelines, an efficient operating structure and transparent reporting and monitoring. The Board of Directors’ risk management policy stipulates the framework, roles and responsibilities for risk management and the guidelines for ensuring that there is adequate capital and liquidity to withstand economic adversity. Hoist Finance’s risk management distributes roles and responsibilities in accordance with three lines of defence.