• Thursday, February 22, 2024
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BusinessDay

Why Nigerian financial institutions need bespoke risk management – Ajibola

Nigerian Banks brace for rising credit risks amid macroeconomic challenges- Ajibola

Risk managers in the banking industry understand the importance of utilising appropriate financial and technological resources to manage risks in a constantly evolving environment. During an interview with BusinessDay, Awele Ajibola, the Chief Risk Officer at FBNQuest Merchant Bank, shares insights on current issues related to risk management in the financial services industry. Dipo Oladehinde brings excerpts

What challenges do risk managers encounter while carrying out their responsibilities?

Risk managers face several challenges while playing the crucial role of identifying, assessing, and mitigating risks within an organisation. Some of these challenges range from risk culture to digital transformation, resistance to change, integration of risk management, crisis management, complexity, and interconnectedness of risks.

Another major concern is the fast pace of changes in the business environment leading to a continuous expansion of the risk landscape and management of emerging risks from trends such as digitalisation, digital currencies, new technologies like artificial intelligence, environmental and social changes, rapidly changing regulatory requirements, and the ever-evolving cyber risk space, which traditional risk management methods are unable to adequately address.

Risk managers must navigate this complexity and ensure a comprehensive understanding of all potential and related risks.

What are the biggest market and liquidity risks facing companies in Nigeria?

The continued uncertainty in macroeconomic developments will be the most significant market risk that eventually dovetails with the liquidity risks faced by companies in Nigeria. Other factors such as political instability, FX devaluation, the unfolding dynamics in the policy environment, and the resultant pass-through to domestic prices also have severe consequences for businesses operating in Nigeria.

As monetary policy tightening progresses, the ability of companies to access funding in Nigeria becomes more constrained by the higher interest rate requirement, limiting expansion opportunities, especially for smaller companies.

In addition, the increased level of cyberattacks experienced by companies in Nigeria due to their reliance on technology results in substantial financial losses and harm to their reputation. These challenges tend to have a high negative impact on their liquidity levels.

As a precaution, companies should be mindful of potential risks and implement measures to manage their impact. These measures may involve expanding their business activities, hedging their transactions, minimising their vulnerability to risk, and having robust financial reserves.

… Nigerian banks may face several significant risks in 2023. These risks include credit risk, operational risk, liquidity risk, foreign currency risk, regulatory and compliance risk, political risk, reputational risk…

What is your opinion on the future of risk management in the financial services industry?

The future of risk management in Nigeria’s financial services industry is likely to be influenced by a combination of internal and external factors such as technology, data analytics, regulatory compliance, cybersecurity, data privacy, operational resilience, a customer-centric approach, collaboration and partnerships, talent and skill development, and scenario planning.

Overall, the future of risk management in the financial services industry in Nigeria will be shaped by the interplay of technological advancements, regulatory changes, market dynamics, and the evolving needs of customers.

Adapting to these changes and proactively managing emerging risks will be essential for financial institutions to remain competitive and resilient in the coming years.

Do you think there are any new technologies or trends that will have a big impact on the field?

Yes, I have observed a few emerging trends and technologies that will significantly impact how companies manage risks.

These emerging trends include the growing use of data analytics and artificial intelligence, the increasing attention paid to sustainability, environmental, social, and governance risks, the rise of cyber threats, and the greater interconnectedness of the global economy.

In addition, some technologies have the potential to revolutionise how organisations identify, assess, mitigate, and monitor risks.

Some notable ones are artificial intelligence and machine learning; data analytics and big data; cybersecurity solutions; quantitative risk assessment tools; robotic process automation; and behavioral analytics.

These technologies can potentially enhance the effectiveness and efficiency of risk management efforts across industries.

However, it’s essential to consider the integration, data privacy, and ethical implications of adopting these technologies. As the landscape evolves, staying informed about these trends and their potential applications will be crucial for risk management professionals.

Technology has made modern businesses more efficient, but it also comes with risks. How can companies mitigate these challenges?

While technology has brought numerous benefits to modern businesses, it also comes with its fair share of risks.

Companies can tackle technology-related risks by implementing effective strategies such as conducting regular risk assessments and developing and implementing risk management strategies to address identified risks; Enforcing strong cybersecurity measures; complying with data protection and privacy regulations; understanding the dependence on third parties and the associated risks; Employee training and awareness on an ongoing basis; business continuity planning and response protocols; Regular audits and assessments of technology infrastructure are needed to identify potential vulnerabilities and areas for improvement.

By integrating these strategies into their business operations, companies can significantly reduce the risks associated with technology while continuing to harness its benefits for improved efficiency and growth.

How do you stay updated on emerging risks and regulatory changes in the financial services industry, and how do you incorporate them into your risk management strategy?

To remain proactive and informed on emerging trends, I rely on various external and internal sources.

These include industry research and publications, regulatory updates and notifications, engagement with regulatory authorities, cross-functional meetings, internal risk assessments, and scenario planning.

Industry (peer) engagements also have greatly assisted in remaining current. These drive related risk dialogue, framework and policy reviews and updates, and risk mitigation measures.

In your opinion, what are the most critical risks facing Nigerian banks?

Regarding managing risks, it is essential to recognise that Nigerian banks may face several significant risks in 2023. These risks include credit risk, operational risk, liquidity risk, foreign currency risk, regulatory and compliance risk, political risk, reputational risk, and other potential challenges.

Some of these risks are significantly heightened given recent macroeconomic challenges.

It is crucial to understand that the risk landscape for Nigerian banks differs depending on their individual strategies, size, and market focus. As a Risk Manager, it’s essential to continuously monitor, stress test, and implement robust risk mitigation strategies to tackle these critical risks effectively.

How does your risk management strategy address those areas?

Banks must maintain strong corporate governance practices that ensure ethical behavior, risk accountability, and transparency in decision-making. Also, integrating risk management practices across all levels of the organisation minimises operational, financial, and reputational risks.

In light of recent economic disruptions and uncertainties, what steps can firms take to enhance resilience against market risks?

Enhancing resilience against market risks is crucial for organisations, especially during economic disruptions and uncertainties.

To navigate market risks, firms must strengthen governance and oversight, keep a close eye on economic indicators, engage in scenario planning and stress testing to foresee and prepare for risks, leverage data analytics and technology to remain competitive, and adapt to evolving market conditions.

It’s important to continuously assess and evolve these strategies to align with evolving market dynamics and emerging risks.

Read also: Banks lose N6bn to fraud in six months – Report

As an African woman, what are the major challenges you have faced while building your career?

A prominent challenge has been striking a harmonious work-life balance throughout my career journey as a young African woman. The intricate interplay of professional aspirations and familial obligations can be

particularly challenging. Another hurdle closely linked to this is the limited networking avenues that facilitate growth and career advancement.

I am fortunate to have been in the company of leaders and mentors who prioritise forward-looking approaches. Thanks to their guidance, I’ve been able to navigate my career path without encountering substantial discrimination or the gender bias that many other women often face.

I’ve consistently believed that the calibre of my work will serve as a testament to my abilities. This perspective is deeply rooted in my character and professional demeanour, and I am convinced that it has played a pivotal role in propelling my career forward up to this point.