NDIC sees poor risk management as threat to banks operations

Critical review of the situation in Nigeria over the years shows that one of the problems confronting the nation’s banking system has been that of poor risk management, says J. G. DonliDonli, director of research, Nigeria Deposit Insurance Corporation (NDIC). He disclosed this at the Risk Management Association of Nigeria (RIMAN) eight annual national conference/annual general meeting in Lagos.

According to him, experience in the last few years, especially in the failures and the revocations of the operating licenses of some banks, had shown many examples that clearly established the poor risk management of some banks in Nigeria.

For instance, a review of on-site examination reports of some banks in recent times, also revealed, among others, that the poor risk management practices that led to the distress and failure of some banks in the 1990s, were still prevalent and many bank managers had not learned appropriate lessons from past misdeeds. The recently concluded banking sector reform has no doubt, had profound impact on the way banking business is conducted in Nigeria.

Before the consolidation, emphasis of banks was the mobilisation of deposits for lending and deposit mobilisation, which became a major criterion for staff performance appraisal.

The import of that regime in banking was that acquisition of skills in risk management was never seen as a priority. Donli in his speech titled: "The impact of sound risk management on the Nigerian financial system and the economy," noted that post-consolidation, the new challenge for banks however would be the management of risks under a well-articulated framework.

He is also of the view that sound risk management would have significant implications for the attainment of the set goals and targets under this new administration which is targeting a minimum yearly growth rate of 13 percent and the desire to make Nigeria one of the world’s 20 biggest economies by the year 2020.

The capacity to manage risks and make forward-looking choices, are key elements of the energy that drives the economic system forward. Risk is viewed not only as potential for hazards or threats but also as potential to maximize opportunities/returns, because as the saying goes "nothing ventured, nothing gained", Donli added. As competition increases in various markets, firms must master how to take advantage of opportunities while reducing volatility of outcomes. The management of risk is a critical function of financial institutions for long-term corporate survival and a regulatory imperative for financial system safety and soundness. The attainment of the lofty goals of safety and soundness in the context of today’s dynamic and complex financial system requires effective risk management in financial institutions.

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NDIC sees poor risk management as threat to banks operations