Chief risk officer | Michael Hoffort will look for financial exposure and vulnerability to fraud
Farm Credit Canada’s newly appointed chief risk officer says his major role is to make sure Canada’s largest farm lender is living within its “appetite for risk.”
It is also Michael Hoffort’s job to assess the policy directions coming from the federal government and the government-appointed board of directors to ensure they do not jeopardize the viability of the crown corporation or its 100,000 agricultural customers.
“A big issue is ensuring the board and all levels of the organization that we are living within the risk appetite that we have set for the organization,” he said.
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If a policy directive threatened to undermine FCC’s conservative attitude to risk, “we would be consulted and we would do our best to make sure that the powers that be understand the implications of that policy shift and the implications it could have for our customers and producers across Canada.”
Hoffort, a 25-year veteran of FCC, started his new role July 1. Planning for the position has been in the works for more than a year, and the seeds were planted when the recession of 2008 created economic chaos around the world and undermined the financial system.
He said his role as a risk officer extends beyond financial exposure to areas such as fraud and risk to FCC’s reputation.
However, with loans outstanding of more than $25 billion in a traditionally volatile and unpredictable industry, assessing repayment risk is a major part of the mandate.
Commodity price declines or interest rate increases would affect the ability of some customers to service their loans.
“We really encourage our customers to protect themselves as best they can,” said Hoffort.
“The most challenging thing that could happen in agriculture is the unexpected, significant change in conditions. A slow increase in interest rates that plays out over a number of years is one thing, but a rapid and significant increase is another.”
Part of his job is to consider the possibilities of a change in interest rates, prices or market access and then calculate the potential impact on the FCC portfolio.
The government has been relatively hands-off in recent years as the corporation grows and makes money, but a change in political direction is also a risk.
He has been around long enough to remember the fallout from the 1980s government directive that FCC would be the lender of last resort during a period of high interest rates and a struggling grain industry facing low prices because of an international export subsidy war.
The result was large annual losses for FCC until the government intervened with more than half a billion dollars in equity investment and a new political order to become more business-like and make money.
“For the first three or four years I worked here, all I did was work with families in financial distress, so I have a lot of memories of those days,” he said.
A quarter century later with a risk officer in place, such a government policy would face resistance.
“My role would be to bring to the table the implications for FCC, our customers and taxpayers and we would be much more able to do that today than we would have been 25 years ago.”
These days, FCC declares profits of more than half a billion dollars annually, which leads to some farmer complaints that the corporation should use its strong bottom line to offer clients better loan terms.
“It’s an interesting discussion,” said Hoffort.
“Really, that $514 million (last year’s profit) goes right back into agriculture. Those profits are necessary to go into our equity to make sure we are properly capitalized so that we can do what we need to do to grow and to stay strong to support the sector.”
