“Whose Job is Credit Risk? Ensuring Institutional Financial Safety,” a new white paper released by Omega Performance, calls for major policy changes to instill a strong risk management culture to protect the institution’s financial security. To accomplish that goal, banks will need to engage in an improved and extensive internal communications program that crosses all department lines.
“Our white paper shows why occasional memoranda about credit risk mitigation is not enough,” said Jenny Daley, president and chief executive officer. “What banks need to create is a formal, focused internal communications plan that effectively conveys that mission throughout the institution.”
The white paper notes that too many banks rely on the risk management expertise of loan officers instead of expanding the knowledge throughout the organization. It states loan risks increase because input from other internal resources, such as credit, non-credit and sales is neither considered nor encouraged.
“Every individual connected in any way with a customer relationship can influence credit risk culture by understanding the nature of risk in the customer information they hear,” said Colleen VanDyke, director of design and development for Omega Performance. “Highly-effective credit driven organizations do not leave such interactions to chance.”
To change the credit culture, it is important for senior management to avoid micromanaging credit risk. Setting goals, monitoring and hoping for success are insufficient, when the focus should be on organizational alignment of risk awareness.
The white paper also addresses the always difficult issue of sales goals versus credit risk with the former often resulting in potentially injurious impact on the latter. It calls for conveying understanding of credit risk to the sales force, most of whom have been given little or no instruction about its impact on the institution and its customers. Such knowledge, it says, will help better identify qualified prospective buyers and more lending opportunities.
The actions of senior management are vital to creating a risk aware environment balanced with growth initiatives throughout the bank, Omega Performance’s white paper concluded. In the end, the strongest credit cultures are built on the contributions of all the people within them.
