Strategic Risks are those that potentially have the most impact on an organisation’s ability to execute its strategies and achieve its business objectives. Therefore Strategic Risk Assessments are performed at Executive Board level for Triodos Bank as a whole and at Managing Director level for each business unit, every three years, with an annual update.
Triodos Bank considers its basic banking model to have a low risk profile. As a traditional retail bank, it earns its income from the transformation of interest and liquidity maturity of money and taking credit risks. Volume is an important factor in generating a healthy income. In addition, the following elements play an important role: the balancing of assets and liabilities, the capacity to set an adequate price for those assets and liabilities and other banking services. Cost control is also crucial to maintaining operational profit.
Strategic risks need to be carefully managed to realise integrated financial and mission-driven objectives.
The corporate and local risk sensitivities are used to determine scenarios that are used to test Triodos Bank’s capital, liquidity, profitability and operational stability during the year.
A risk appetite process is implemented across Triodos Bank to align its risk profile with the willingness to take risk in delivering its business objectives. The Risk Appetite Statement reflects the actual implementation of the Risk Appetite Framework. It is updated yearly and is approved by the Supervisory Board upon advise by the Audit and Risk Committee. The concept of risk appetite and the link to the Strategy and Business objectives is illustrated below:
Overview of risk capacity, risk appetite, risk limits and the relationship with Triodos Bank’s risk profile.
Triodos Bank uses a set of indicators and limits to measure and assess the level of risk appetite and risk profile of the organisation. The risk limits, determined at corporate level, are translated into a localised limit structure for each branch. This local limit structure, or ‘cascaded’ limits structure, is being developed for all risk types.
The risk appetite is based on three objectives that fit with Triodos’ corporate goals and guarantee a sustainable banking model. They are to (1) protect identity and reputation, (2) maintain healthy balance sheet relations and (3) maintain stable growth.
The Recovery Plan specifies measures Triodos Bank can take in order to survive a severe crisis that impacts its capital position, liquidity, profitability and operational stability. The aim of a recovery plan is to be prepared for a crisis and therefore to lower the probability of the organisation defaulting. It also aims to identify and quantify the effectiveness of corrective measures which are taken in different scenarios.
Enterprise Risk Reporting
Every risk discipline reports on a monthly basis (e.g. Non Financial Risk Report, ALM Report and Business Banking Loan Report) or on a quarterly basis (e.g. Compliance Report). These reports are discussed in corresponding committees, and correction measures are taken whenever needed. On a quarterly basis, they are integrated in the Enterprise Risk Management (ERM) report which provides insights into the Triodos Bank risk profile in relation to its accepted risk appetite. The objective of the ERM report is to create a single point of reference for all risk related activities within Triodos Bank. The ERM report also provides insights into specific risk themes and provides an integrated picture of risk at corporate level. This report is discussed in the Enterprise Risk Committee and shared with the Audit and Risk Committee and Supervisory Board.