Risk and capital management is a critical part of our business. NHFIC’s approach to risk and capital management is based around assessing the level of, and appetite for, risk, and ensuring that the level of capital is appropriate to that risk profile.
The Board is responsible for defining NHFIC’s risk appetite and establishing an appropriate risk management framework.
The Board, with the assistance of the Audit and Risk Committee, has developed a Risk Management Framework which sets out the core principles and the types of risks that NHFIC faces. This forms the basis on which a Risk Appetite Statement and Risk Control Matrix have been established.
The Board relies on the Executive to manage the implementation and embedding of NHFIC's risk appetite into NHFIC’s activities, monitor performance and report as appropriate to the Audit and Risk Committee and/or the Board.
NHFIC’s risk culture and core principles guide everyday behaviour in the organisation.
NHFIC strives to:
Maintain the highest professional and ethical standards
Align any staff incentives and rewards to encourage behaviour consistent with its risk appetite
Provide an environment where employees are empowered to the full extent of their abilities and that fosters innovation and learning within business practices
Monitor, stress test and re-evaluate risk ensuring management information systems and risk reporting accurately reflect the underlying risk
Only provide facilities after carefully and appropriately considering the risk implications
Be intolerant of regulatory and compliance breaches.
Risk appetite is a fundamental part of both risk and capital management. NHFIC guides itself in fulfilling this obligation by setting its own standards for capital adequacy, drawing upon the experiences of domestic and international non-bank lenders, such as the Housing Finance Corporation in the UK.
The Board’s Risk Appetite Statement sets the boundaries for the risks that NHFIC may accept to achieve its objectives within risk policies, risk tolerances and operational limits set by the NHFIC Act, Investment Mandate, PGPA Act and the Board.
NHFIC's risk appetite represents the types and degree of risk that it is willing to accept for its stakeholders in its strategic and business actions.
NHFIC’s risk appetite is:
Dynamic. The Board will review its Risk Appetite Statement on a regular basis in conjunction with its Corporate Plan and relevant Government policy (such as the Investment Mandate).
Defined. It requires NHFIC to operate within its defined tolerances and governance procedures.
Encompassing. It provides a roadmap that guides its internal risk culture and sets boundaries defined by principles and metrics (both quantitative and qualitative) which are considered collectively.
Judgement based. It recognises that articulating risk appetite is a complex process balancing many different views, but ultimately is a question of judgement.
NHFIC management undertakes regular risk reviews to ensure that our strategic and operational activities align with the Board’s appetite for risk. NHFIC follows established risk review procedures to ensure that we have a consistent view of the risks we face. Information on significant risks, collected through this process, is reviewed by senior management prior to being reported to the Board and Audit and Risk Committee (through the regular provision of the risk dashboard and RCM).
Risks are classified depending on their nature. NHFIC’s key risks fall into the following risk categories (as described further in the table below): reputation, strategic, credit, investment and earnings, funding, liquidity and liability, operational, regulatory and compliance, fraud and corruption, and culture and people.
|Risks associated with any action, or inaction, that is received by stakeholders as unethical or inconsistent with NHFIC’s purpose.|
Risks related to meeting strategic objectives and expectations of key stakeholders.
|Credit||Risk of default from a borrower failing to make their required payments under NHFIC’s loan conditions.|
|Investment and earnings||Insufficient earnings to meet operational expenditure and Capital Reserving for ABHA and Permanent Fund requirements.|
|Funding, liquidity and liability||Risks related to our ability to raise and access finance from the capital market and to settle liabilities or obligations as they become due.|
|Operational||Risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.|
|Fraud and corruption||Failure to prevent and detect fraud.|
|Regulatory and compliance||Risks associated with a breach of the Investment Mandate, the NHFIC Act, the PGPA Act and Rules or other legislation or directions from the Minister relevant to NHFIC and changes in Government policies.|
|Culture and people||Risks associated with the loss of corporate capacity, knowledge management and inappropriate corporate culture.|