By Yinka Kolawole

The Central Bank of Nigeria (CBN) has commenced the risk-based supervision of mortgage banks along with other financial institutions (OFIs) in the country.

This follows a circular issued earlier in the year by the apex bank directing all OFIs to submit their risk management framework and their compliance report before 30th June, 2011.

According to the regulator, the Risk-Based supervisory framework would encourage sound risk management practices the OFIs. The circular titled: “Commencement of Risk Based Supervision and the Development of Risk Based Systems in Other Financial Institution,” signed by the Director, Financial Policy and Regulation, Mr. Chris  Chukwu.

The risk-based approach to supervision is a proactive and effective supervisory process which enables the supervisor to prioritize and focus supervisory efforts and resources on areas of significant risks or on institutions that have high risk profiles.

It entails a shift from the rigid rules based supervisory approach to a more risk sensitive one, and seeks to encourage institutions to develop and continuously update their internal risk management system to ensure that they are commensurate with the scope and complexity of their operations.

The banking watchdog explained: “The supervisory framework for Banks and OFIs was, therefore, put in place to encourage banks and OFIs to develop their risk management framework. Accordingly, OFIs are required to put in place a comprehensive risk management framework.”

The CBN urged operators of OFIs to develop clear procedures for identifying, measuring, monitoring and controlling risks; Identification of risk mitigation processes in their organisation; the establishment of a monitoring and review process; establishment of a contingency and business continuity plan as well as the identification of the goals and objectives of risk management in their organisation.