Operational, cybersecurity issues are now risk officers’ primary concern – Union Bank’s CRO

As economies across the world continue to battle pandemic-related economic and social upheaval, organisations have had to implement robust risk management frameworks to navigate the ‘New Normal’.

In a chat with BusinessDay’s Desmond Okon, Olajumoke Odulaja, the Chief Risk Officer of Union Bank shares insight on the industry’s response to the crisis and specific efforts Union Bank has taken to navigate these unprecedented times.

Tell us a bit about your professional background and your journey to becoming Union Bank’s Chief Risk Officers (CRO).

Having qualified as a chartered accountant in my final year in the university, I started my career with Standard Chartered Bank where I worked for about 7 years in various credit risk roles before joining Stanbic IBTC Bank to further broaden my horizon and acquire more skills.

I joined Union Bank after close to 10 years in Stanbic IBTC. The move offered me an exciting opportunity to expand my scope of work and assume greater responsibilities. As Chief Credit Officer, I was able to consolidate and apply the experience gained in previous roles. I was promoted to Chief Risk Officer shortly after I joined the Bank, and I would say that the experience I gained in the two international banks I worked with previously, greatly prepared me for everything I am currently doing.

It is a well-known fact that risks rise during and immediately after a crisis. How has the role of Chief Risk Officers evolved in response to the unprecedented COVID-19 global crisis?

The reality is that risks always abound, but the nature of the risk is what changes with the times. Our role as Chief Risk Officers has not changed per say, but the focus has evolved in these times, with operational risk and cybersecurity issues taking a front seat over credit issues, which before now, tended to be the primary concern.

This is not to say that credit risk has been relegated, after all we continue to see the impact of COVID-19 on many businesses. However, operational risk issues have become more important than ever before.

With the COVID-19 crisis came the lockdown which was totally unexpected. Banks, being classified as essential services, needed to work out how to serve customers in a safe way whilst working remotely. The pertinent questions then became – “Do employees have the requisite tools to effectively work from home? How do we ensure continuity of operations if the Bank’s Head Office or branches have to close because a case of COVID-19 has been detected?” At Union Bank, our robust Business Continuity plans were quickly brought to the fore.

What are some of the main risk factors the banking sector has had to contend with in these times and how have banks generally been able to navigate these risks and ensure resilience?

As earlier mentioned, we had to contend with operational risk issues, cybersecurity, fraud risks and of course credit risk issues. With operational risk, the issue was how to continue to operate the Bank efficiently while ensuring that both staff and customers remained safe. With the lockdown and the work from home policy, it was about ensuring staff could work effectively without weakening the controls and exposing the Bank to cyber risks since many people – employees and customers – were accessing the system remotely. This dovetailed into cybersecurity and fraud risk issues. The stay-at-home policy meant that people could come up with new innovative ways that further put all banks on their toes.

At Union Bank, a key part of our approach was to reinforce cyber and fraud awareness with new programs and initiatives.

Regarding credit risk, we all know that most businesses were impacted by the pandemic with some sectors more impacted than others. Thus, the risk of default was high for the impacted sectors. We were quick to put in place measures to quickly identify early warning signals via enhanced monitoring of the portfolio and remedial measures were promptly implemented where necessary.

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How has the pandemic affected organisations’ risk assets and what impact has it had on Union Bank’s bottom line specifically?

Whilst some businesses benefited immensely from the pandemic and grew their revenues, most were not so fortunate and were adversely impacted one way or the other.

The full impact on risk assets is not yet known – for weak borrowers, they have defaulted, and we have worked on restructuring measures and payment holidays where there is room for them to bounce back given the gradual return to business as usual.

Some larger companies have been hit but the extent of the damage is not yet known. The Central Bank of Nigeria (CBN), through the commercial banks, proactively rolled out remedial measures. Some will come back strong thanks to these measures, but some others may not come back to full health and may need more time.

At Union Bank, I would say one other area the bottom line was impacted will be on cost as we invested in more technology/systems to accommodate increased remote access. Also, during the lockdown we had to house critical staff close to the offices and arrange transportation and security to ensure their availability, given the restrictions on movement.

Despite the tough economic climate in 2020, we saw Union Bank’s loan book increase by 23.8% from 2019. How was this growth possible in such challenging times?

There are always opportunities in every situation. We focused on searching out these opportunities and maximising them. For example, we did not suspend lending but rather became more selective, targeted, and focused on key growth sectors in the economy with government backing e.g manufacturing, healthcare, and a few others. The CBN introduced financing schemes at preferred rates for these critical sectors and we leveraged on the same to grow our loan book.

We understand Union Bank was one of the first in Nigeria to implement the remote work model- even before government-imposed lockdowns were announced. What made this quick pivot possible without disruptions to operations and service delivery?

Interestingly we had been driving our work-from-home policy even before the COVID pandemic and subsequent lockdown. As part of our transformation efforts, we made major strategic investments to modernise the IT infrastructure of the Bank. This meant that we already had the latest technology able to handle the new trends in banking such as digitalisation, mobile banking, cloud services etc. which allowed us to very quickly pivot to the remote work mode. At a point, we had over 70% of our employees working remotely, with no adverse impact on the Bank’s operations.

Beyond individual responses, we have seen more concerted efforts by other industry players to mitigate against the effects of the crisis. Bringing this home to the Nigerian banking sector – what efforts have regulators put in place to reduce banks’ exposure to risk factors and how do you see the regulatory framework developing in the coming years?

The CBN was very quick to respond to the challenges brought on by the pandemic. The apex bank proactively rolled out a framework for payment moratoriums, interest rate reduction and restructuring of facilities for customers affected by the pandemic without the same impacting the banks negatively in terms of provisioning- regulatory forbearance.

This cushioned the impact of the pandemic especially during the lockdown when economic activity slowed.

The banks have also been working together to restructure large exposures on a syndicated basis to maximise the chances of success. This should remain in place for as long as the crisis continues, although we have already started to see some relief.

The jury is still out on what the business world would look like post-COVID-19, but it is clear that the regulatory framework will continue to respond in tandem with the evolving ecosystem.