President of Risk Managers Association of Nigeria, Mr. Jude Monye
President of Risk Managers Association of Nigeria, Mr. Jude Monye, in this interview with Nume Ekeghe and Nosa Alekhuogie spoke on the factors hindering banks from lending to the real sector and other sundry issues relating to the financial sector. Excerpts:
What is RIMAN about and to what impact does your organisation have in terms of policies involving your Risk Management?
Risk Managers Association of Nigeria (RIMAN) formally known as Credit Risk Managers Association was founded on 29th March 2000 as a foremost non-profit association established to promote best practices and advocacy in risk management and related disciplines in Nigeria. We also strive to be a dependable body in sustaining best practices and high professional competencies in management of risks in the financial and non-financial industry.
Recently, your organisation announced collaboration with the chartered institute of bankers Nigeria (CIBN). Can you tell us the objectives of the alliance?
One of the objectives for setting up RIMAN, apart from the capacity building, is also education which means certification. Today, if your look at the competency framework of central bank, our qualification has been subsumed as one of the requirement for you to be a risk manager whether in banking or out of banking.
To get this going, we are not yet a chartered institute and we have been given a right to certify people and the process in Nigeria is rigorous, it is not something you do overnight. We decided ride on the back of CIBN that is a known institute for decades and have done this over and over again.
So we decided to partner with them by way of collaboration and using their backbone to administer this examination. It is both the theory and practice of what we do. People who are risk managers in finance, insurance, pharmaceutical or energy as long as you are a risk manager because risk exists in everything. So CIBN gives us the backbone to provide the logistics for the examination but everything about registration, exam testing, and validation is done us because we have our in house capacity.
At the end of the day, if you pass the exam, you would be certified CRM holder so you can practice. We have three stages; the first one is starting April this year not solely with RIMAN because I must emphasis on it. It is in collaboration with CIBN.
Presently, there are more bankers in your organisation, what does your organisation contribute in terms of risk managements in banks?
It is not for bankers only, It is for everybody whether financial or non-financial. It was started by bankers. We started this in 2000 and we called it CREMAN (Credit Risk Mangers) and credit risk basically exists in financial sectors. It was mainly in banking so now we have migrated it out to Risk managers that is all spectrums of risk; credit, market, strategic reputation, legal risk all kinds of risk. So this is risk managers association.
We have lawyers, bankers, insurance practitioners and even energy people amongst us. But saying today we are actually dominated by banking, it is true it is because that is where the practice of risk management has been made pronounce in this country. So if you look at the sector that has taking risk management to another level, it is the financial institutions.
RIMAN is in the forefront of championing activities of risk management. We have impacted on our profession in the financial institution through research, capacity building, training and also advocacy. We can give our government especially policy formulators, our views how it affects the banking landscape of the financial landscape as it were.
Maybe I should use this opportunity to say that one part of advocacy that I would want the association to champion more would be getting the country to establish what I call national risk institute or national risk assessment centre. If Nigeria has a risk assessment centre, this issue of mono product would be cautioned.
If you look at CNN today, analysis were being made bout Venezuela, Nigeria, Angola down to brazil that their economies are shaking to the root. The reason being that oil prices have gone down from over a $100 to about $30. Basic risk says concentration risk and key and that is what we have had since the 70s’ when we started down playing on other sectors and pushing off the oil and gas as it applies to us today.
So if we have national risk assessment sectors, a chief risk officer for the country like we have the chief finance officer for the country, Nigerians should also have chief risk officers whose dimensions identifies measures and profile metical for all the risks that the country is facing and then we would take it from there and before you know it this same thing would be proliferated in the state.
States would begin to have chief risk officers for the state as we are clamouring here for institutions whether banks, non-banks, we must have a risk management process manned by a chief risk officer and other risk professionals and then we are also sustaining this practice by providing guidance training, education and equipping them to the various emerging and dynamics of risk in the space where they all are operating.
What has been the response from banks and other institutions to this capacity building you talked about?
Response has been good but I would not end without saying that we need significant improvement. We need to project what we do, what we would have done, what we can do to people outside. As leaders of institutions, you do not wake up and say I want to subscribe to an association. You have to x-ray the value, what value is on the table for the institution.
We know how we have added value to some institutions, we know how we can add value going forward and we do not have the medium to push it out there that is why we need the media. Now, improvement is needed because membership grew from less than a thousand to over a thousand, individual membership and institutional membership.
Today institutional membership is very low compared to others like pharmaceuticals, textiles, energy. So we do not really have that base. But for banking we have quite a lot of banks. All the banks have institutional members. And they all pay for the subscription even as it is today, if there is no value, they would not pay that much.
We are looking at raising our subscriptions and I know in consultation with them that they would all pay. So there is value on the table but how do we reach out to other people who are not bankers so that they can belong. A hospital needs risk management, every hospital needs a risk manager and they should be part of this association so it is not limited to banking.
Now the job is on us now to expand our curriculum and scope of operation from being core financial to other risk areas. If a chief risk officer for a general hospital comes into our meeting, what does he expect to gain? That is why we need some significant improvement in terms of our scope of delivery and reaching out to people outside by putting the value preposition on the table for everyone to see.
What are the core values risk managers add to organisations?
Risk management is a process. So anything that is a process means that there is no destination. Or there is a destination but when you get to that destination, it becomes a process again from there.
So risk management is the process of identifying, managing, measuring, controlling risk. That is a very mundane definition. How do you measure it, assess it, and control it, what is the value of going through that process. Firstly, it helps you to know what we call inherent risk in what you do.
If Nigeria were to have an office dedicated to risk management, what would be its value to the nation?
Now the value to the nation, there must be somebody who is screaming and telling the whole country for example this oil revenue alone is called concentration risk. We can’t depend on one product to finance a nation.
Secondly, this same person would begin to say you need to get more people of very strong character that can avoid leakage is a risk. Leakage is a risk, looking at a publication recently, NNPC has done over how many trillions and they have remitted only about nine hundred and sixty something billion in 2015 so where is the Gap? So it shows that there is risk on the national sphere, so leakage is a risk, concentration is a risk, and then the next one is people. What kind of people, that brings about operational risk. What kind of persons are working in our institutions whether federal, state or even the agencies.
What kind of background checks do we do on them? So there is a lot that the chief risk officer or the national risk institute / assessment centre would do as it were on that. So now bringing it down to RIMAN, what is the value that RIMAN adds, I have started by telling you that we have capacity building, research, advocacy that we do to provide information on the dynamics of risks on the changing phases of risks for institutions.
Three we can provide what we call expertise for the bank. If a bank comes today and says I am having a problem on Information Technology risk issues or getting a chief information system officer because I am worried by this cyber risk, RIMAN what can you do for me? We should be able to say this is the way you should go and this is how we can help you. Consultancy, we can also do that for them.
Today, Nigeria is losing a lot of money because of lack of project assessment. They embark on projects when a risk assessment is not done and half way into the project, the project is not completed and they are sourcing for more funds. When at a national level you have risk managers who can assess the risks before a project starts, we can be sure the project would be completed within the time frame and there would not be loses along the line.
Are you saying we don’t have risk managers at the national level?
Risk management is done in Nigeria on what I call silo basis. An example, NNPC wants to execute a project; they get a project manager to do the environmental impact assessment. It is part of risk management. Impact assessment is if there is a project, is it going to cause harm to the environment and if they are, to what level.
Is it on people alone, is it on animals and is it on the ecosystem entirely. So they do all those and then they submit a report. And it ends there. So NNPC comes to a bank and says they need a project to be funded. A bank should ask for the environmental impact assessment before we give you money. Now this is leading to what we call sustainability banking.
The country has no framework. There is no legal framework on which a risk management framework would ride on. If we come as a nation and create this integrated framework where Nigeria can say this is the Chief Risk Officer who is charge of managing risk.
Presently, banks are suffering from liquidity problems since the emergence of TSA and other monetary policies that are reducing their income. What is the position of risk managers in steering them back to earning more?
TSA is not new. I have of TSA since 1993 when I was in Citi Bank it never saw the light of day. Obasanjo came and wanted to implement it through Soludo it also did not see the light of day.
Goodluck came back and stared it and now got to the point of implementation until Buhari came in to implement. This has long been on the table so it is not new to banks. The banks know the effect but a country were government is the highest spender which Nigeria is, would always face what we are facing.
If you apply TSA in the United States of America, the banks are running very well because the energy of the banks come from three segments; SMEs, insurance and pension . Insurance are the richest institutions in those developed worlds and also pension funds. These three are not government institutions and they fund most of these banks. But in Nigeria, it is the government money we use to do business and now the government has taken it.
Your question on how risk managers would redirect banking institutions to core banking. Simple core banking is taking from surplus to deficit so we intermediate. The money to intermediate is no longer there. So must continue that your basic practice. That is your core function of intermediation. How we can do that is to get liquidity from other sources and one of those is to drive the retail. Retail is you and I, the SMEs etc. the good thing about retail, is that those funds are stable and cheap. The down side of it is that it takes time to build.
Number two is diversification in other areas, not just retail banking to see other sources we can get. There are a lot of financiers outside, developmental institutions that gives banks funding. And the last would be cost cutting.
With the reduction of CRR, which was targeted at increasing loans to the real sector, why has it been difficult for banks to lend to the real sector. Are the risk mangers not prepared?
Banks are lending to the real sector but in what quantum. Banks are lending to real sector. When people say real sector, they are talking about manufacturing, farming etc. the point is what basis point CBN dropped to. CRR dropped from13 to 11percent.now who has taking time to see what that translates to in banks.
What does it translate to in their books, and how much deposits do banks have and what that 2percent drops translate too? If what I have lend to the real sector is almost 30percent of my total portfolio, I have other obligations. The monies I am holding are not government monies for me to say let me use it for long term financing. The other funds that I’m holding are from people like you that are just giving me up to 30 days.
You cannot do 30 days lending to any real sector. You can’t also do 1 year lending to real sector. So which money in my intermediation process am I going to use to lend. Any regulator who looks at my balance sheet would see gap and would think that asset and liability management here is zero.
What I am saying is that, we still do not have does developmental funds. If you want businesses to grow and then export, it is developmental funds long term funds. The longest funds that we get used to be from government because the other funds are funds from fix deposit or in current account where they can withdraw anyway.
Those monies, we use them in buying T-bills and put them in liquid assets so that the day the customer says they need their money, you just convert to cash and give the person their money. Because the day you cannot give a customer his money, one trumpet can cause the bank to shut down. And that is why CBN has also created the liquidity ratio of 30percent.
We are lending to the real sector and before you talk about to but it is what quantum, you must talk about the environment and Infrastructure. Government has a part to play or in private partnership in providing infrastructure for this real sector.
The CBN has MSME fund given to banks at 3percent which they asked banks to lend at 6percent. Why hasn’t there an improvement to people who fall into this category?
When the central bank has taking the liquidity risk and has provided the money, they are giving us the credit risk, which is the ability for the customer to repay because if the customer does not pay, we pay CBN that money. They have dropped both credit and performance risk with the banks. There is what we call risk premium, charging for the risk, does that 6percent cover that quantum of risk.
Now let’s assume that it covers and if it does cover, why are the banks not giving that money? I do not want to collect from CBN and give to a customer who would default so I would first of all look at qualified customers who would get these funds from CBN.
First of all, they don’t have financials I can rely on so the banks would try to see how they can qualify into this category. Some look at it as CBN money or national cake not knowing that the liability is on the bank. Ask CBN, that money is not being assessed.
Another suggestion I would give which others have said before is to have a collateral registry. SMEs don’t have collateral to give to banks. This would help.
There is also something we call risk weight in competition of our capital adequacy ratio. The collateral that these SMEs would provide, what would be the risk weight of them and if we are talking about margin, the margin is ok but the issue for me is did they properly price that risk. We also need to develop our credit bureaus, we need to establish and grow the collateral registry and also they should have unify and reliable financial data that can help us to lend to them.