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Don links poor risk management, governance to banking challenges

By Chijioke Nelson and Lucky Orioha
07 October 2015   |   12:34 am
Poor management of risks, non adherence to corporate governance and regulatory issues have been identified as prime factors that have led to banks’ failure in Nigeria, which also lingers till now.
PHOTO: www.ediltecnogh.com

PHOTO: www.ediltecnogh.com

Poor management of risks, non adherence to corporate governance and regulatory issues have been identified as prime factors that have led to banks’ failure in Nigeria, which also lingers till now.

Besides, the inability of banks to generate enough funds through retail business and their over dependence on government funds have also contributed to their poor business ideas and near collapse in any change of policy.

A researcher, insurer and Managing Director of Brickred Consult Limited, Dr. Dan Okehi, made the observation in Lagos during the presentation of his Doctoral research report on “Modelling Risk Management in Banks, Examining Why Banks Fail”, to the banking industry stakeholders.

He grouped risks inherent among banks into credit risk, marketing risk, liquidity risk, operational risks, lamenting that the inability of banks to manage the above risks has led to “death” of many banks.

He also said the dependence on government funds, which many operators prefer to chasing individual (retail) deposit has contributed to banks’ failures, and advised banks to develop products and strategies that will make them self-reliant and be more ethical in their business conduct to mitigate operational risks.
Okehi, who spoke on the implications of the Treasury Single Account (TSA), noted that beside poor risk management and political factor such as the federal government’s directive on its funds is one of the salient factors that cause bank failures in Nigeria.

“Banks should at this time like my research recommended learn how to generate their own funds and not relying on these government funds Easy funds you know Nigerian banks they believe in simple procedures they want this simple cash so that they can just sit in the office and be ruling on  money, they should develop products, develop  strategies that will be able to generate money constantly from the system”, he advised.

He also reiterated that ineffective risk management, poor corporate governance and non-adherence to regulation contribute significantly to incessant bank failures both in Nigeria and other parts of the world.

“A close look at bank failures prior to the world’s financial crisis of 2008 and the post crisis period revealed that ineffective management of the inherent risks in banks was one of the root causes of their failures.
“Corporate governance and risk management are interrelated and interdependent the stability and improvement of any bank’s performance are highly dependent on the effective role of both components,” he observed.

According to him, many banks in both developed and developing economies of the world suffered huge losses stemming from this, adding that it was for this reason that Basel Committee on Bank Supervision (BCBS) formulated broad supervisory standards and guidelines, recommendations and best practices on issues of risk management in banking as captured in Basel I, II, and III from 2008 to 2013.

Okehi, at the occasion, showcased a new software he designed for bankers, tagged Brickred Banking Enterprise Asset RiskSoftware, saying it is a risk and Finance decision support system that will serve as banking management tool.

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