How Enterprise Risk Management Can Optimize Your Bank’s Performance

December 8, 2020

Webinar Risk Management

Enterprise risk management in banking

In a volatile market, your bank’s success depends on its capacity to take on and optimize calculated risk. Many banks that fail have common issues such as having too much capital in commercial real estate and taking on too much risk without fully assessing the potential loss.

Having strong, well-executed risk management in banking can create a baseline for success, carrying your institution forward for years to come. Effective Enterprise Risk Management (ERM) can help you avoid common pitfalls like these. 

Risk consultant Ken Proctor joined Info-Pro for a recent webinar to discuss how enterprise risk management can be used as a tool to optimize your institution’s performance and reach your business goals.

Supporting your institution’s underlying goals

Many indicators can predict potential issues that may arise throughout the course of loan terms. Common indicators include: 

  • An under-diversified lending portfolio
  • Too many assets in commercial real estate
  • Long-term growth strategies backed up by “hot money”
  • A lack of understanding of your bank’s ability to absorb losses. 

However, by establishing forward-looking risk indicators and staying on top of your institution's unique assets and capabilities, you can successfully estimate your organization’s ability to take on risk. 

These indicators rely heavily on your risk appetite statement. Your risk appetite statement and strategy can help your institution reach its business goals by establishing clear standards for lending and a thorough understanding of your risk management process. Furthermore, this statement should translate into institution-wide policies that ensure you’re taking on the right opportunities at the right times.

Creating a forward-looking risk management program

Your strategic plans and objectives should be clearly outlined and measurable with specific key performance indicators (KPIs) and key risk indicators (KRIs). These indicators should clearly show you when your organization is headed for trouble—like having an overabundance of high-risk loans that, in the event of market destabilization, could outweigh your assets. 

For example, KPIs and KRIs to track cold include your bank’s risk limitations and volumes, or concentrations of loans over a specific period. By tracking KPIs and KRIs like these, your team can effectively embed them within your overall risk strategy, informing the rest of your plan with tangible data. As part of this top-down readjustment, you’ll need to have the findings incorporated in your policies and guidelines to ensure that you have the proper limits on your lending protocols.

On top of helping you avoid such risks, your strategy should point you towards the opportunities worth taking on such vulnerability. Successful ERM allows leadership to take smarter risks in the pursuit of opportunities that can lead to greater rewards. Monitoring your KRIs can help you do just that.

Using your strategy to support your bottom line

Using KRIs, your institution can keep the pulse of what’s going on with your lessors. For instance, important KRIs that can alert you to shifts within the market include reports of new business compared to strategic plans, loans made as exceptions to your policies, and credit grade fluctuations. Each of these can point to the direction your institution is headed, and what you should be paying more attention to. 

With a strong risk appetite statement and firmly outlined KRIs like these, you’ll have an effective ERM system that optimizes earnings and supports long-term value creation.

Enterprise risk management

Enterprise risk management is essential to your financial institution’s success—something institutions are acutely aware of after the last year. By identifying risks that may take away from your institution’s bottom line, you can implement a top-down strategy that predicts any impediments to your long-term goals. Furthermore, this strategy can help you capitalize on lucrative assets that may become available to your institution. Your risk appetite statement, along with monitoring the KPIs and KRIs that are built into your business model will ultimately provide the navigation tool that has eluded many banks for decades.

Info-Pro takes “the complex” and makes it easy. We collect and integrate data from the 26,000+ property tax authorities nationwide into a user-friendly software platform, enabling financial institutions to easily identify property tax delinquencies and pay escrow taxes. To learn more, contact us today.