By Christopher Nnanta InvestAdvocate
Lagos (INVESTADVOCATE)-The Nigeria Deposit Insurance Corporation (NDIC) is set to adopt a Risk Based Supervision (RBS) framework in the supervision of Banks in Nigeria.
This is contained a Statement Wednesday by Hadi Birchi, Head, Communication & Public Affairs of NDIC and made available to www.investadvocateng.com.
To achieve this, the NDIC said it has in collaboration with the Office of Technical Assistance (OTA) of the United States Treasury embarked on a six (6) week training programme on risk-based supervision as part of the Corporation’s capacity building for its staff.
According to the Statement, Umaru Ibrahim, Managing Director/Chief executive Officer (MD/CEO) Corporation in his keynote address at the opening ceremony of the training programme, said the need for the adoption of RBS framework in the supervision of Banks in the country was based on the fact that both the system and the institutions were getting more complex in terms of size, nature of products and volume of transactions.
“If these complexities were not properly identified, measured, monitored and controlled, they could inflict damages on the institutions and the system at large†Ibrahim said.
He described the risk-based supervision (RBS) as a proactive and efficient supervisory process, which focuses attention on the risk profile of the supervised Financial Institutions and enables the Bank Supervisors to develop a supervisory package for each Bank.
According to him, the Bank supervisors would also efficiently allocate resources based on the risk profile of individual Banks and proactively monitor and supervise them in order to promote safety, soundness and stability of Nigeria’s financial system.
Ibrahim emphasised that the RBS presents a framework with which Banks are assessed on the basis of impact of their risks rather than on intuitive assessment.
He said in contrast to the transaction and compliance based approach to supervision which is biased in favour of risk-avoidance and hence against innovative products and services, “the RBS treats risks mitigating and offsetting as valid approaches to risk management†the NDIC MD said.
“A risk-based supervisory process provides flexible and responsive supervision to foster consistency, coordination and communication among supervisors; relies on the performance of the risk assessment and development of a supervisory plan and procedures that are tailored to the risk profile of individual Banks.
In that regard, risk-based supervision identifies measures and controls risks as well as monitors risk management processes put in place by Financial Institutions during a supervisory period†Ibrahim said.
According to him, the main objectives of RBS are to sharpen supervisory focus on the activities or institutions that pose the greatest risk to Banks and other Financial Institutions as well as the assessment of management process to identify, measure, monitor and control risks.
“The main benefits of the RBS include among others focusing resources on each Bank’s high risk areas, or devoting more supervisory efforts toward Banks that have a high risk profile, which enables the Regulator to focus more attention on Banks whose failure could precipitate systemic crisis†Ibrahim affirmed.
The NDIC MD Commenting on the rationale behind the RBS training programme, said that the shift from transaction and compliance based supervisory approach to risk based supervision posed a lot of challenges to the supervisory authorities, the biggest of which is capacity building.
Ibrahim said the NDIC Examiners and Analysts who are directly involved in the supervision of Banks and other Financial Institutions require adequate training on the new supervisory approach.
“We need to be ahead of the Operators to be able to understand what they are doing and the nature as well as the quantum of risk they harbor and the necessary risk mitigants they put in place.
“This training and indeed the intervention of OTA in this area is part of the giant strides taken by the Corporation to strengthen the supervisory capabilities of our examiners and analysts†Ibrahim said.
“The training programme is designed by the OTA Technical Adviser on risk-based supervision, B. C. Hamilton and NDIC’s Director of Bank Examination Department, Olarenwaju Sulaimon and it is broken into five areas: Sensitivity to Interest Rate Risk, Risk Management, Operational and Market Risk, Anti Money Laundering (AML) with emphasis on AML International Transactions relationships and Owned Real Estate. It is being run for three weeks each in Abuja and Lagos, consisting of six sessions for two days in each location and 15 – 25 participants per session†the Statement said.