“RIMAN goes beyond banking, insurance to non-financial sectors”
Although the private sector has done well in risk management especially banking industry, Jude Monye, Risk Managers Association of Nigeria (RIMAN) in this interview with Hope Moses-Ashike draws the attention of the sector on the growing cyber and other emerging risks. Except
Generally, how would you assess Risk Management in Nigeria?
Generally risk management in Nigeria is still not what we intend it to be. Looking at where we are coming from especially, the private sector has done well when it comes to risk management. For instance, the banks have progressed from where it used to be, which is where all we do is all about credit risk but today I can tell you that almost all the spectrum of risks are being practice in the banking and financial institutions. But nationally we have still not come to that awareness for risk management. So, I will say in Nigeria we are not yet practicing risk management as a nation but the fragment entity like banking – I know a lot of risk management practices are being carried out in banking which range from credit risk to market risk, to operational risk, to reputational risk and even beyond that. The major risk that also face the industry are all being managed on a day- to- day basis, so if you localize it to banking I would say maybe not excellent or very good but I can say we are average in terms of risk management because of so many other reasons. As a nation, we are very poor in terms of risk management.
What is the cause of being poor in risk management as a nation?
Risk is the is need to be deliberate in managing risk and the nation as it is, is driven by the government in power, institutions and so on. Do we have institutions, maybe yes; and if we do are they working, no; we can see the institutions are not working, and when the institutions are not working risk management cannot work properly because there will be things like over rule, things like high handedness, you over-rule people when they take an action, and when they put something on the table that this is the way to go – you over-rule them. Again there is impunity, people want to do what they want to do, and nobody wants to follow procedure. Risk management is about procedures, is about following the processes; so once people do not want to follow processes you cannot get it right by way of risk management. There are a lot of things we do in Nigeria that nobody wants to follow due process. We have good documents that say this is the process for doing this, but at the end of the day if something goes wrong, if you go and check, you will discover that the process was not properly followed or the procedure was not properly followed. For that reason I would say it has become a problem. And secondly, it’s also not in the front burner of the people who are leading us, if we have a leader today who begin to emphasize risk management, I can bet you in every homes, organizations, agencies, and government parastatals, agencies and ministries, you will see risk being practice.
For example, the Emir of Kano when he was the Central Bank Governor, risk was put in the front burner and you could see it. In fact that was what actually transformed the banking industry because he made that very important by making the bank industry to see that you can die, you can collapse without good risk management, and everyone bought into it and it was brought into the fore front and today you can see a lot have been done due to what he started. So if you have a leader at the national level leading the notion and also begin to emphasize risk management in our country it will be a different ball game.
Discussions about political risk seem low or is it in significant?
Political risk is being talked about, in the banking. You must analyse your risk and as you are analysing your risk, political risk is one risk you must analyse. So, it is talked about in the banking and financial sector. If we make out loan we must put the political risk in content as to how do we get back this money in the event of the crystallization of the political risk.
So, we talk about it but whether the people in government talk about political risk I do not know, I am not in government, I am in banking. Political risk is one major risk that affect the industry, if the government comes up with a policy today that affect both internal and external investors, it becomes the issue of political risk. If the sovereign risk of the nation which you can also called political risk is not well rated, not well managed, the rating agency, the market watchers will begin to say we cannot do business in this country because there is so much political risk and no one is controlling it . A place like England you can tell a 10, 15years how many times interest rate has gone up, so once you know that in 5 years, in 10 years no government policy is going to affect the interest rate as a risk manager it helps to plan ahead, people can invest, people can plan their businesses, people can do what they want to do knowing that the political risk is minimized. We do not take to heart what political risk can do to the growth of our nation and our people as well. So nationally, we also do not manage our political risk, the things you see are part of political risk, if government comes out and say certain things that should not be said, it create the environment that would not enable businesses to thrive, these are all part of political risk. Now streamlining it back to banking again, we as bankers manage our political risk properly to ensure that our investment and assets are protected.
What risk are we likely going to see in banking this year?
I am not a soothsayer but from what we have seen every day the cyber risk is growing, all kinds of things are happening in the cyber space today because we are going cashless, because we are going everything E – e-commerce, e-business, and so on. So, it introduces its own corresponding risk which I called E-risk, so that is going to grow. And as its growing out, credit risk Non performing loan is going to grow because people are defaulting. They are not paid salary, businesses are closing down and they cannot service the loan that they have taken to do the business, so credit risk becomes pronounced and that leads to huge non-performing portfolio in terms of loans for banks and other emerging risk that people do not consider. For example, environmental and social risk, the social risk like boko haram – if there is insecurity, you have restlessness, and those are social risks that can stop investment. I cannot fund today anybody who is saying he want to build a factory or Agric farm somewhere in Yobe, because of the social issue; so those are social risk and then you have the other social risk or environmental risk like pollution. There was a time people were complaining in Port Harcourt, if you stay outside for 30 minutes and just wipe your face, everywhere is black because of pollution. People have modular refinery in their back yard from the inter land and then the complete combustion of the hydro carbon begins to release lots of things that are unpleasant for us to breath in and if you can feel that on your face that is the same way the lung of people will feel, so this is a kind of risk and other environmental risk. Now, banks funding those businesses that are polluting the environment, is a different issue so there are a lot of emerging risk that are coming up today that we need to be on our toe in terms of managing risks – credit risk, cyber risk, environmental and social risk even the exchange rate risk. So this uncertainty does not allow businesses to actually thrive.
Do you see risk avoidance as solution to risk management in banks?
Risk avoidance can never be a solution. In banking, for example, the banks are in the business of taking risk but the kind of risk we take in bank is calculated risk. Your eyes are opened and you look at the risk, you identify that there is a risk here and then you analyse the risk. What is the quantum of the risk that am carrying if I go into it? How do I mitigate this risk that it does not crystallize and if I do not mitigate it how do I reduce the risk? Do I need to take collateral to reduce the risk in the event of crystallization, so risk avoidance is not the answer for banking business. Life itself is a risk, you go to bed and you do not know whether you are going to wake up; in the morning you see yourself, you are up, that risk did not crystallize for some people who sleep and wake up. So, risk avoidance is not the solution but you can reduce risk. You can split risk, you can mitigate risk and then you can also take risk to the level of your apathy.
The high exposure of the bank to oil and gas has led to high NPLs, does it mean that the banks/ risk managers did not do their risk analysis very well?
Not that the risk managers or analyst did not do their job very well, there are a whole lot of factors. If you want to go that way, one major thing was the micro environment. People knew, and I would say that in the risk management circle people knew that oil price was going to go down and a lot of banks are exposed hugely to this oil and gas industry. Now we began revaluing our portfolio in terms of rebasing, if oil go down below so, so amount how would that affect the portfolio, if it goes below this amount how would that affect my portfolio, so what happen was that it creep into us, and the oil company became affected so much and the banks that have done the strategy knew that if that happened again, this is where it’s going to put us. So, what does that call for, increased capital so that you can absorb those losses. So, it is not about the failure of analyst or risk managers. Example is our nation, the former minister of finance Okonjo-Iweala onetime said we need to save because this oil price is not going to remain the way it is, it will eventually go down and she created sovereign wealth funds, excess crude fund, created all sorts just to manage risk in the event it crystallizes. We all know what happened in the country, I do not want to go there, today we are paying the prize for not saving, maybe we saved and it was squandered. So, would you say an analyst or a person did not do their job, the minister did her job but look at where we are today, so another thing could just be impunity and then the corruption and the squandering nature that we have today in our nation could be part of all the things that are happening but we cannot say it was the failure of the analyst or risk managers not doing their job, it was just more of the macro issues that have caused that.
What is the best practice for risk managers in Nigeria?
I would not prescribe best practice, there is no best practice because I do not even know what best practice is, but I know what is good for me, you see common sense in lending for example, anybody I cannot give my personal money to. Why should I give the bank’s money to any person. There is no scientific rule to that if I know that if I give you my money you will not return it why would I give you the bank’ money? So what works in those areas or jurisdiction where they have done it well why not emulate what they have done and do it. The risk is about identifying, analyzing, managing, controlling and reporting. You must report risk, you must identify risk, you must understand what you have identified, you must also control and manage what you have identified so that remedial action can be taken and that is why we say that governance risk and compliance go together. it’s a package that I recommend at any point in time.
Is raising capital to absorb the huge risk the way to go and considering the current economic crisis?
When you have risk crystallizing; why do we have capital to start with; the capital you have first is to absorb shock in the event that you have a business shock, the capital absorbs it. But once you do not have capital and the shock happens, the next is death. It’s like you are flying in a very high altitude and then the aircraft loses energy or fails to function, what happens?. So, if you do not have the oxygen max when the aircraft begins to drop, people begin to die – that is what capital does. Capital takes shock, it’s like a shock absorber in any vehicle, you enter into a potholes the shock absorber holds you so that the person inside do not feel the impact much; that is what capital does. But unfortunately it is difficult to raise capital now in the present Nigeria because of what is happening to all but then the need to raise capital for businesses is still very prominent and powerful.
What is the update on Risk Management in Nigeria today and plans of RIMAN?
RMAN is Risk Managers’ Association of Nigeria, it is an association that has been on since 2000 and today it has evolve as a very strong force in terms of best practices, governance, advocacy and capacity building as far as risk management is concern. It has also gone beyond this fundamental to pursue certification, which we call the CRM that is Certified Risk Managers, and the first and two examinations have been taken and now we are pushing the third one coming. The essence of this is to make sure we have quality people managing risk. Whoever we certify we can say yes this person is fit to manage the risk of any entity, it could be insurance, bank, hospitality, aviation, government , public relation, entertainment, in every area of life because we started by saying risk exists anywhere in life. So the CRM exam is to prepare people for risk management, and the third one is coming this October, RMAN is also into advocacy, we have taken that to the highest level on certain issues, one is the charter status of the association, which has been taken to the national assembly so that RMAN can be given this charter status of becoming the foremost risk manager association that is charter, so that it can influence the laws of the land, we can add our voice or voices to issues of risk as far as government policy are concern, and that is moving very well. On the capacity building we have trained hundreds and thousands of people since the inception of the association, I can say we have done very well, RMAN has gone beyond banking, insurance, financial to the non-financial. Now we are even in government and entertainment, aviation and in various areas because it is a body that houses all risk managers where we reason together, where we discuss topical issues and see how we can foster and break the frontiers of risk management in Nigeria.