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Review of banks risk management capacity inevitable – NDIC

By on March 16, 2015

Managing Director/Chief Executive, Officer Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim, has said deposit money banks needed to fine-tune their risk management capacity to contain the possible fallout and risks arising from the deterioration of the exchange rate as well as shrinking government revenues.

He said though the Central Bank of Nigeria (CBN) had recently affirmed the sound health of the Nigerian banking system, attention must be paid to possible adverse consequences of emerging developments in the economy.

Speaking in an interview with THISDAY, he advised the banks to sharpen their risk management skills by getting more acquainted to their debtors and the kinds of businesses they undertake before giving out loans.

He said effort should also be made by the financial institutions to recover loans which are already disbursed.

He said: “As you might have read recently, the Central Bank of Nigeria issued a statement to the effect that the Nigerian banking system is fairly stable and we quite agree with that; but having said that, we are also not unmindful of possible adverse consequences of these developments in the economy.”

Following a stress test on all Deposit Money Banks (DMBs) in the country, the CBN had declared all banks as being sound and adequately capitalised to absorb unexpected losses.

It further noted that from their unaudited financial results as well as the results released so far by the banks, economic headwinds had not significantly affected their returns.

Notwithstanding, Ibrahim said: “Any well-managed bank will take stock of its loan assets in the first place; whether they are loans given in the areas of agriculture, oil and gas or loans to government or manufacturing or whatever to see the extent to which their debtors would be able to cope with these changes.”

He said the banks must strive to “Get closer to their debtors and see how they can support them and where necessary, work out the loans among other things, so that you minimise the default and delinquency with all its attendant problems. What can you do to a debtor that’s exposed to a government or local government may be as a security contract and he’s not paid six months to one year, for instance: what can you do? You can’t kill him.”

He said the recent hike in cash reserve requirement (CRR) of banks by the CBN has also had unintended consequences including lack of liquidity in the banking system, thereby limiting the banks capacity to give out loans to deserving entities, a development which he said had translated to higher costs of funds.

“These are emerging issues. So we expect the banks to do everything possible to contain the situation,” he said.

However, he noted: “The CRR was introduced for very good reason as a tool for liquidity management and control by the central bank; the whole idea being that if there’s less liquidity in the system, the CBN would be in a better position to manage inflation as well as speculative transactions in foreign exchange transactions.

“This should be able to preserve our much needed foreign exchange.”

 

[ThisDay]