April 16, 2023

RISK MANAGEMENT: Lessons for Nigerian banks from SVB, Credit Suisse, others crash —Experts

RISK MANAGEMENT: Lessons for Nigerian banks from SVB, Credit Suisse, others crash —Experts

By Tunde Oso

OPERATORS in the Nigerian financial sector have urged regulators and deposit money banks (DMBs) to draw lessons from the failure of Silicon Valley Bank, Credit Suisse and other banks by ensuring proper risk management.

They spoke at separate events in Lagos last week.

At a thought-leading programme created to empower various stakeholders with knowledge on emerging issues affecting the banking industry and the economy organised by the Chartered Institute of Bankers of Nigeria (CIBN) on Thursday in Lagos, Mr. Mustapha Ibrahim, the Executive Director (Operations), Nigeria Deposit Insurance Corporation (NDIC), tasked financial sector regulators to ensure proper risk management.

Dr. Ken Opara, President/Chairman of CIBN harped on the “need for experts across the globe to discuss and examine the systemic issues plaguing the regulatory gaps as well as its global impact.”

The CIBN boss stated that it is pertinent to discuss the global impacts to extract insights to strengthen the banking system and ways to further improve the operational efficiency of Nigerian banks, in particular.
In his thoughts on the subject matter shared on his company website, Prince Oladele Adeoye, Executive Director/Chief Rating Officer of DataPro, said “Our banks should develop the capacity to have a practical understanding of the behavioural patterns of their market of operation.

You must develop the capacity to see through the lens of time to know when the party is over in a sector and cut down on your losses.

“There must be a deliberate action plan to pull the plug when you discover that your bank is highly exposed to a particular sector. On the fund supply side, banks must be deliberate to diversify their risk in the event of excessive exposure to a particular sector.

The Central Bank of Nigeria has a guideline on the single obligor limit as well as banks’ maximum exposure to connected persons and sectors. Banks should learn also not to breach this to avoid a repeat of the financial tsunami of 2010 and the sort of collapse that befell SVB.

“The board of any institution is responsible for the determination of the Risk appetite and tolerance of any Bank. They have that task to determine when the limit is breached and the need to quickly fix that before it degenerates to a level where such could no longer be tamed.
“In the instance of SVB, the choice of a business segment to serve and investment securities to apply depositors’ funds would be made or ratified by the board. Therefore, the Board could not be held blameless in all of these. While we may not be able to fault Board composition and balance of power on the Board of the bank, it is obvious that there was a poor investment decision,” Adeoye said.
Adeoye continued, “Banks must build intelligence. A high-level research team to monitor macroeconomic indices within the economy of their operation. Constant scanning of the external risk factors, which include regulatory focus, compliance barometer, and market dynamics. All of these are to be constantly monitored by financial institution operators.”