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Stress Testing is Essential for Risk Management, Experts Affirm

19 Nov 2012

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By Obinna Chima

Risk Adviser Partner, Ernst & Young, Mr. Ben Afudego, has said that stress testing is important for the entrenchment of risk management in any institution.

Afudego has also advised risk managers in the financial sector to develop sustainable liquidity management strategies for growth.

He gave the advice while speaking at the Ernst & Young’s Strategic Financial Sector event tagged: ‘Financial Services Risk Management’, that was held in Lagos at the weekend.
Afudego noted that liquidity and capital management have impacted on the continuity of many businesses. He added: "Higher capital and liquidity buffers are changing the economics of many businesses. Returns on investment will go down, cost and leverage will be reduced and margins will go up.

“Liquidity is the highest priority for risk management at the moment. Complying with new Basel III and local Liquidity Coverage Ratio (LCR) requirements are driving initiatives to review and adjust liquidity management systems and processes. It should be managed to include both groups and entity level”, he added.

According to him, improving stress testing, role of internal auditor as well as recovery and resolution planning are essential for financial development.
“Over 90 per cent of firms have made changes to their approach to managing liquidity risk by upgrading stress test, well structured pricing structures and elevating discussion to the board level.

“Improving stress testing is central to risk governance as over the past three years, the industry has made many improvements. Recovery and resolution planning is a work in progress for most firms. Recovery plans are beneficial management tool. The role of internal auditor and chief auditor executive should be increased,” he noted.

Also, Financial Services Leader for Africa, Ernst & Young, Mr. Emilio Pera, stressed the need to explore opportunities in the insurance sector so as to increase consumer confidence. Pera said: “We should set out to explore what drives consumer behaviour to achieve results within the industry.”

Tags: Nigeria, Featured, Business, CBN

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