Determined to consolidate on the gains of the banking sector reforms and international best practice, the Central Bank of Nigeria (CBN) is planning another round of stress tests of all banks in the country, to ascertain their level of compliance and soundness, the regulatory agency has said.
The test, which is a follow-up to the last stress test conducted in 2009, that witnessed mergers and acquisitions of Intercontinental, Oceanic, Finbank, Equitorial and Union banks and the nationalisation of three others Bank PHB, Spring Bank and Afribank, will come before the end of the year and it is part of the Financial Sector Assessment Programme (FSAP) under a technical assistance programme facility provided by the International Monetary Fund (IMF) and the World Bank.
Also, the CBN has commenced the implementation of risk-based supervision of banks and as a complementary effort, is in the process of adopting and implementing the Basel 11 and Basel 111 capital accords by the end of the year.
Kingsley Moghalu, CBN deputy governor, Financial System Stability, who disclosed this at the Risk Managers breakfast meeting in Lagos yesterday, said as a complement to this, the CBN has also strengthened its risk based supervision of off-shore Nigerian banks, adding that there exists now, cross-border supervisory co-operation and co-ordination with other jurisdictions where Nigerian banks have presence.
“We want to make sure those Nigerian banks that are operating in foreign countries, especially West Africa, comply with all the regulatory requirements of their host countries. Secondly, we want to make sure that internally here in Nigeria, they are adequately capitalised and structured to be able to sustain international operations. So, in that context, we are having increased interactions with our colleagues in the West African region and now we have a college of supervisors in the region,” Moghalu said.
Speaking further, he said, “We (CBN) have received in one or two instances, complaints about a number of things and we have taken action to address those issues.”
The deputy governor said the adoption and implementation of these initiatives would foster better risk management and corporate governance in banks, as well as improved regulatory supervision and industry transparency.
This, he hopes, will have practical consequences for the role and responsibilities of bank directors and senior management.
Furthermore, he said the bank is in the process of developing a framework for the resolution of the banking crisis in future, with strong scenario planning. This is in addition to a strong macro-prudential framework that anticipates and addresses the several macroeconomic imbalances, shocks and systemic exposures to which the banking and wider financial system in Nigeria is vulnerable, including global dynamics.
Also, efforts are now being evolved to set up a forum of Chief Risk Officers (CROs) of banks to provide a platform to periodically discuss risk issues in individual banks and the industry at large.
The CBN, he said, remains committed to the promotion of strong risk management practices in the banking industry and will continue to work hard to improve the way in which we conduct supervision.
Considering the identified skills and capacity gaps and the paramount importance of having in place a sufficient pool of skilled talents and risk professionals to drive and support effective risk management in financial institutions, he suggested that significant attention be accorded professionalised risk management education in Nigeria, through the development of qualification and certification programmes by registered professional bodies and training providers such as the Risk Management Association of Nigeria (RIMAN) and the Credit Risk Management Association of Nigeria (CRIMAN); establishment of an accreditation and assessment system for risk management training providers in the financial services industry.
He urged the Human Resources departments of individual institutions to create an on-going programme to increase the knowledge and understanding of risk throughout the organisation and address issues such as risk identification, risk types, risk analysis and measurement, market and economic influences and impact, compliance roles and responsibilities, and lessons from past banking and financial crises.