By Udeme Clement

The West African Monetary Zone (WAMZ) has called for the immediate establishment of colleges of supervisors in the West African sub-region to enhance information sharing on effective supervision of the banking industry to forestall bank failures resulting from risks exposures, even as it stressed the need to set up explicit deposit insurance schemes within the region to mitigate deleterious consequences associated with systemic crises in the sector.

A director, Administration/Finance, West African Institute for Financial and Economic Management (WAIFEM), Mr. Euraclyn Williams, made this known while addressing participants at the regional course on ‘Foundation Banking Supervision, organised by WAMZ in collaboration with WAIFEM, saying that there is the urgent need to build capacity of staff supervisory agencies in credit analysis and risk management in banking organisations to ensure effective supervision.

He added, “In such a dynamic financial environment, it is vital for the regulators to have a firm grasp of the different risks associated with various banking activities such as credit, default risk, foreign exchange risk, interest rate risk, liquidity risk, because here lies the rationale for adopting risk-focused approach to banking supervision.

The growing number of financial conglomerates presents significant supervisory challenges as different agencies are responsible for each traditional segment of the financial industry. An effective mechanism must be put in place to co-ordinate supervision of such conglomerates.  The importance of capital adequacy is indubitable. Capital serves as a risk-absorbing buffer should enable banks to be prudent in risk taking activities.”

“Risk-focused banking Supervision (RFBS) entails the development of a supervisory plan that is relevant to the organisation’s changing risk profile. Its effectiveness depends on the existence of rule of law that ensures enforceability of contracts. The existence of regulatory agencies should be both operationally independent and sufficiently funded to carry out their duties.  The banks and financial sector supervisors must work closely to achieve effective supervision.

This can be achieved through timely information flows, facilitated by enhanced information technology and implementation of the suggestions requires overhauling the legal and financial oversight frameworks and the changes in the supervisory framework of our countries”, he said.

According to him, “tremendous development in technology, financial services are evolving from transactional to information management and the structure of delivery channels are changing to electronic distribution channels.

Internationalisation and deregulation have also increased the possibilities for contagion as evidenced by the spread of financial crisis from Thailand to the rest of Southeast Asia, to East Asia, Eastern Europe, South America in the late 1990s and the recent global financial crisis of 2008.

Not to be outdone, West African banks have also increasingly gone global in their operations, opening offshore branches or establishing foreign affiliates. Rapid innovations in financial markets and the internationalisation of financial flows have changed the face of banking almost beyond recognition.

Technological progress and deregulation have provided new opportunities for an increased competitive pressures among banks and non-bank financial institutions. As such, banking supervision to ensure risk management is quite imperative”.

The course which drew participants from various countries within the sub-region covered an overview of the WAMZ regional financial system and regulatory framework, the function of the central banks and the role of the financial institutions, need for banks supervision and the impact of bank failure, legal and institutional framework for regulation of banks, basic accounting and interpretation of financial statements, an overview of the internal control measures, offsite monitoring techniques and risk management.