Setting the Menu

menu as part of a placesetting on a table
Ancin Cooley, CIA, CISA Photo
Synergy Credit Union Consulting

2 minutes

Considerations for writing your credit union’s risk appetite statement.

So, how hungry are you?

In the financial context, this question goes far beyond lunch choices and reaches into the most important aspects of your credit union’s lending strategy.

Your “risk appetite” refers to the amount of risk your institution is willing to accept in pursuit of loan growth. Defining the bounds of this appetite in a risk appetite statement helps determine the direction of your lending program in an effort to bolster your organization’s long-term health.

Consider this: Your lending program is the star athlete of your credit union or bank. While it may look fit on the outside, we all know that if your star is running on a steady diet of fast food and soda, there will be serious negative consequences down the line.

So too an unhealthy risk appetite can leave you vulnerable to negative future outcomes. Assessing risk appetite empowers you to take authentic action now—before there’s trouble and a regulator would need to step in. 

When’s the best time to assess risk appetite?
Strategic planning season is the ideal time to take a complete and broad to first create your statement of risk appetite. After that, your risk appetite statement should be updated annually and its efficacy reviewed quarterly.

What’s the benefit of taking time to create a risk appetite statement?  
Done right, a comprehensive risk appetite statement sets the tone of both day-to-day and macro-level decision making. By translating risk metrics into business decisions, you can trust that your strategy, target setting and risk management are all aligned.  

Whose hunger sets the menu?
Within any organization, risk appetites will vary across departments. It is important to take the time to incorporate and synthesize these many different viewpoints for the sake of strategy. Ultimately, however, the board of directors, CEO, CFO, lenders and internal auditors should all participate in the development of the risk appetite statement. Effective implementation of the statement requires common goals, planning and language.

In sum, defining risk appetite and memorializing it in a risk appetite statement helps achieve any institution’s goal of finding a healthy balance within its portfolio that matches its actual tolerance for risk and reward managed risk while driving earnings.

Bon appétit!

Ancin Cooley is principal of Synergy Bank Consulting, Chicago. Synergy provides strategic planning and credit review services to small and large credit unions around the country.

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