Nordax’s business model is based on a restrictive approach to risk taking, and the bank has a low risk appetite and risktolerance. This approach to risk pervades every part of operations and has helped Nordax over the years to build a sound risk culture.
Simplifying things, it is only in its lending that Nordax consciously takes risk, in the form of credit risk. Nordax tries to limit other risks as far as possible and reasonable. This approach to risk is one reason why Nordax’s business model has been profitable during both financial crises and in good times. Credit risk management is also limited by a conservative credit risk appetite and high demands when it comes to our customers’ creditworthiness, which has led to stable credit loss levels that have been below the ambition of 2% over an economic cycle. Nordax’s overall risk appetite and risk tolerance is determined by the Board of Directors in the risk and capital policy. Special governing documents are in place as well to manage credit risk, market risk, liquidity risk and operational risks.
THREE LINES OF DEFENCE MODEL
To ensure that it effectively manages risk consistent with the risk culture and that good internal governance and control are in place, Nordax has established the three lines of defence model. The three lines of defence are designed to establish robust risk management with clearly delegated responsibility within operations. The three lines of defence are also an effective way to manage the increasing regulatory requirements Nordax faces in practically every part of its business as well as ensure that internal rules are being followed.
- The first line of defence is the risk management performed daily by operations.
- The second line of defence is by the Risk Control and Compliance functions, which monitor, control and report the company’s risks and whether they fall within internal and external rules.
- The third line of defence consists of Internal Audit, which serves on behalf of the Board of Directors and, among other things, regularlyreviews the Senior Management Team as well as the company’s internal controls, the work of the control functions and the company’s risk management.
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