NDIC, OTA train banks on risk-based supervision, Monday, 10 Apr 2012  


(The Guardian) The Nigeria Deposit Insurance Corporation (NDIC) has collaborated with the Office of Technical Assistance (OTA) of the United States Treasury to conduct a six-week training programme on Risk-Based Supervision (RBS) as part of the corporation's capacity building for financial institutions. Specifically, the adoption of RBS framework in the supervision of banks is to strengthen the system and institutions in terms of capacity, nature of products and volume of transactions that are getting complex and identify measured, monitor and control, that would ward-off damages posed from complexities. The NDIC Managing Director/Chief Executive, Umaru Ibrahim, described the risk-based supervision (RBS) as a proactive and efficient supervisory process, which focuses attention on the risk profile of the supervised financial institutions and enables the bank supervisors to develop a supervisory package for each bank, adding that, the bank supervisors would also efficiently allocate resources based on the risk profile of individual banks and proactively monitor and supervise the banks in order to promote safety, soundness and stability of Nigeria's financial system.

Speaking at the training opening, Umaru emphasised that the RBS presents a framework with which banks are assessed on the basis of impact of their risks rather than on intuitive assessment. He further said that in contrast to the transaction and compliance based approach to supervision, which is biased in favour of risk-avoidance and hence against innovative products and services, the RBS treats risks mitigating and offsetting as valid approaches to risk management. According to him, "a risk-based supervisory process provides flexible and responsive supervision to foster consistency, coordination and communication among supervisors, relies on the performance of the risk assessment and development of a supervisory plan and procedures that are tailored to the risk profile of individual banks. In that regard, risk-based supervision identifies measures and controls risks as well as monitors risk management processes put in place by financial institutions during a supervisory period."

Meanwhile, the main objectives of RBS, are to sharpen supervisory focus on the activities or institutions that pose the greatest risk to banks and other financial institutions as well as the assessment of management process to identify, measure, monitor and control risks. He added that the main benefits of the RBS include among others focusing resources on each bank's high risk areas, or devoting more supervisory efforts toward banks that have a high risk profile, which enables the regulator to focus more attention on banks whose failure could precipitate systemic crisis. He, however, gave an insight on the rationale behind the RBS training programme. He said, "the shift from transaction and compliance based supervisory approach to risk based supervision posed a lot of challenges to the supervisory authorities, the biggest of which is capacity building, pointed out that, the NDIC examiners and analysts who are directly involved in the supervision of banks and other financial institutions require adequate training on the new supervisory approach" He argued: "We need to be ahead of the operators to be able to understand what they are doing and the nature as well as the quantum of risk they harbor and the necessary risk mitigants they put in place. This training and indeed the intervention of OTA in this area is part of the giant strides taken by the Corporation to strengthen the supervisory capabilities of our examiners and analysts."

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