Risk management

Hoist Finance’s core business is the acquisition and management of loan portfolios, and Hoist Finance is accordingly exposed to credit risk. Being a regulated credit market company under the supervision of the Swedish Financial Supervisory Authority (SFSA) requires a solid understanding and management of all the risks to which the Group is, or can be presumed to be, exposed.

Hoist Finance defines risk as the possibility of a negative deviation from what is expected. This could be a deviation from expected earnings, liquidity levels or capitalisation.

At any time, the company’s risk profile must remain within the risk appetite set by the Board of Directors, which in turn must be within the risk capacity.

Risk management framework

Risk management objectives at Hoist Finance are to:

• support the achievement of strategic and tactical business objectives,
• increase awareness of the company’s complete risk profile through the identification, analysis, measurement, control and reporting of risks,
• facilitate and ensure efficient and effective operations, and
• secure the Group’s survival by maintaining adequate and appropriate capital and liquidity levels.

This creates and maintains confidence in Hoist Finance among owners and other investors, borrowers, savings customers, bank partners and financial institutions, employees and society at large. To fulfil the risk management objectives, the Board of Directors has adopted policies and strategies for the identification, measurement, mitigation, reporting and monitoring of risks in day-to-day operations, which together comprise Hoist Finance’s risk management framework.

Hoist Finance’s core business and risk strategy is to generate returns through controlled exposures to credit risk in the form of acquired loan portfolios comprised predominantly of non-performing consumer and small business loans. In doing so, Hoist Finance actively and continuously takes on credit risk. Other types of risk, such as operational risks, liquidity risks and market risks are undesired but unavoidable in conducting the business. For these types of risk, the strategy is to reduce exposures as far as it is economically justifiable.

Hoist Finance has identified the following key risk areas:

• credit risk,
• operational risk,
• market risk,
• liquidity risk.

Risk capacity, comprised of capital and liquidity buffers, is established to ensure the company’s survival. The difference between actual capital levels and regulatory minimum levels demonstrates Hoist Finance’s capacity to absorb losses before critical levels are reached. Liquidity risk capacity is the scale of the liquidity outflow Hoist Finance can accommodate without breaching minimum regulatory requirements.

The Board of Directors establishes Hoist Finance’s risk appetite within the available risk capacity. By weighing potential returns against risks, the Board of Directors decides on an appropriate risk and return level for Hoist Finance. Hoist Finance’s risk appetite then provides the basis for business decisions and risk limits, which are applied in day-to-day business activities and in risk monitoring. Continuous monitoring performed by the Group’s Risk Control function ensures that the Group does not assume any risks that exceed the established risk appetite, risk capacity and/or risk limits.

Three lines of defence

Hoist Finance’s risk management is built on clearly defined goals, policies and guidelines, an efficient operating structure and transparent reporting and monitoring. The Board of Directors’ risk management policy stipulates the framework, roles and responsibilities for risk management and the guidelines for ensuring that there is adequate capital and liquidity to withstand economic adversity. Hoist Finance’s risk management distributes roles and responsibilities in accordance with three lines of defence.