One always says no and the other gets excited just a little too early

One always says no and the other gets excited just a little too early

You are currently viewing One always says no and the other gets excited just a little too early

The conflict between Risk Management and Relationship/Investment Management in a Financial Institution or at an Asset Manager (Lender) is as old as the companies themselves. One side plays it safe, while the other jumps the gun with enthusiasm.

At the heart of the matter, there are two fundamentally different perspectives: Risk Managers, often perceived as overly cautious, are accused of being out of touch with the realities of the marketplace. Relationship Managers are viewed as short-term focused, and overly eager to deploy the institution’s capital without due diligence.

This friction, however, masks the potential for synergy that could drive the institution towards success, of making adequate returns or phrasing it in a more humble way, “making sure the loan is repaid”.

How can we be smarter about this problem?  To transform this age-old confrontation into a productive dialogue, both parties need to reconsider their approaches:

Let’s start with the Risk Manager. The default answer ‘no’ in decision-making needs to be more constructively replaced with a ‘yes, if’ stance. This means articulating clear conditions under which a proposal might be approved, based on a well-articulated risk appetite and a thorough risk assessment framework. It’s about setting realistic parameters, not moving goalposts, or imposing unwarranted restrictions. It also needs profound experience to handle borderline cases. It must be based on transparent communication and information sharing throughout the lending process.

On the other hand, Relationship Managers need to recalibrate their definition of success. No high-flying announcements or press releases of new transactions, allegedly groundbreaking, game-changing, mind-blowing, etc. This language is mainly deceiving. The focus should shift from the initial thrill of loan disbursement to the goal of the borrower’s successful repayment and the fulfillment of the loan’s intended impact. It’s about running the full marathon, not just reveling in the excitement of the starting gun.

Financial Institutions are shifting their business models towards a more customer-centric and risk-sensitive approach. The goal is no longer to just “sell loans” but rather to solve a client’s problems and accompanying its growth. This will require significantly higher risk awareness in the first line of defense, combined with a much leaner second line.

It also requires a much stronger team approach. In team sports, you often need an offense and a defense. In the most successful teams, you can see the offense contributing to defending and the defense scoring goals as well. No team will be successful if the players just stick to their positions.

Embracing this team spirit requires a deep understanding of the actual value addition that banking services bring to the customers. Throughout my career, I’ve witnessed and been part of this dynamic interplay, and I’ve seen firsthand the fruits of successful collaboration. It calls for mindful leadership and stakeholders who truly understand how conscious risk-taking differentiates itself from short-term gambling.

If your team is yet to embrace this ethos, perhaps it’s time you led the charge. After all, change begins with a single step, or in this case, a shift in perspective.

Leave a Reply