Financial institutions in Nigeria have been advised to modernise and integrate their risk management systems in order to stay relevant in a rapidly changing market.
Chief Financial Officers and Chief Risk Officers of banks were also urged to deploy Information Technology (IT) Automation and Risk Management Analytics to address increasing financial risks.
The advice was given at the SAS Risk and Finance Analytics Roadshow, which held in Lagos on Tuesday this week.
Speaking at the SAS Roadshow, Senior Business Solutions Manager, Pre-Sales Risk Practice, SAS, Charles Nyamuzinga, advised banks to adopt advanced analytics solutions that are multi-tenancy in terms of risk management use cases and cover the entire risk management process, from data management, risk analytics and reporting, to meeting governance and controls requirements.
According to him, banks in Nigeria and Africa were faced with additional challenges, including risk analytics skills shortages, data management issues and integrating their risk management and finance processes across the enterprise. He however said the banks have started considering technology as a way of eliminating these challenges and have access to new streams of data that are also helping to advance the financial inclusion mandate.
SAS as a technology partner for banking institutions has always played a proactive role in fostering innovation and transformation of processes and systems, from regulatory compliance to strategic decisions support, from digitisation to risk assessment in real-time. SAS said it has analytics solutions that would allow banks to adapt more quickly to regulatory changes and minimising costs.
As with banks all over the world, banks in Africa should already be compliant with the new IFRS 9 accounting standard, which changes the way they calculate expected credit losses, Nyamuzinga said.
He called on banks in Nigeria to start thinking about the new ‘Basel IV framework, which impacts on how banks calculate their risk weighted assets and the amount of capital they need to offset those risks.
Another source of regulatory pressure banks are grappling, with are the requirements, questions and challenges related to conducting stress tests, as the regulators become more stringent on stress testing processes, he said, adding that if either of these calculations, which are based on risk models, are incorrect, banks will not only have to worry about non-compliance penalties but also the capital shortfalls, reputation impact and negative impact on earnings performance.
To address it, Nyamuzinga said banks should use disparate and fragmented systems for data management, model building and implementation and reporting.
According to hm, the biggest causes of incorrect modelling are data management and quality issues and skills shortages. “Banks have to obtain and analyse enormous amounts of detailed data and must comply with IFRS 9, and look at millions of customers with hundreds of data points,” Nyamuzinga added.
He said banks should also take into account cost reductions as well as high performance, efficiency and governance issues in risk and compliance processes.