Effective Risk Management Reshaping Financial Services in Nigeria

Presented by:Eneni Oduwole

Group Head, Operational Risk MgtGuaranty Trust Bank Plc

Eneni Oduwole - NIFEx USA, 2013

Outline

•10 year review

•Outcome

•Impact on FDI Inflows

•Financial Services Reforms

•Basel Compliance Initiatives

•Your Concerns

•Evolving Trends

Eneni Oduwole - NIFEx USA, 2013

Our Story…

S/N

2003 2008 2013

1 No. of Banks 89 24 20

2 Categorization of Banks Non-existent Proposed In place

3 Capital Requirement N500m ($3.03m)

N25b ($151.52m)

Based on Category

4 Type of Regulatory Supervision

Compliance-based

Introduced Risk-based

Conducts Risk-based

5 Close supervision of Non-banking Financial Services

Minimal Stricter measures

Closely monitored

6 Basel Compliance Mostly a myth Nice to have Strategic

7 CBN’s Supervisory Role:

- Enforcement of RM Introduced Advised Mandated

- Competence No RM Function

Introduced Fully Functional

- Approach Compliance-based

Intro of Risk-based

Risk-based

Eneni Oduwole - NIFEx USA, 2013

Our Story (cont’d)…

S/N

2003 2008 2013

8 Financial Institutions:

- Categorizations Non-existent Proposed In place

- Supervisory scope Mostly banks Minimal for Non-Banks

Strict across board

- Board & Management; Tenor of Chairmen/MDs

Existence of Owner-

Managers;Tenor-less

Minimal Incidences;Tenor-less

Non-existence;Max. of

10years (CBN Rule)

- Compensation Glamorous Overblown Stream-lined

- Skill set of Key Staff Undefined by CBN

Checked by CBN

Stipulated

9 The Economy:

- GDP / GDP Per Capita $67.66b /$357.36

$207.12b/ $1,370.00

$262.62b / $1,052.34

- Foreign Reserves $7.46b $53.60b $47.06b

- Inflation Rate 13.8% 11.6% 8.0%

Eneni Oduwole - NIFEx USA, 2013

The Outcome…

• Increased business activity in Nigeria with annual growth rate of 7%

• Increased Public-Private Partnerships for Infrastructural Growth

• Revival of moribund sectors such as Telecoms, Agriculture, Power

• Nigeria was No. 1 FDI destination in Africa both in 2011 and 2012; Foreign Private Capital Inflow increased from $6.14b between Jan – May 2012 to $10.00b for the same period in 2013

• Resuscitation of the Capital Market

• Institution of a Sovereign Wealth Fund with initial capital base of $1billion

• Licensing of more international banks

• A Nigerian Bank featured in Africa’s Top 10 most profitable banks in 2013

Eneni Oduwole - NIFEx USA, 2013

FDI Inflows to Some African Countries in USD billions (2010 - 2012)

Foreign direct investment (FDI) to Africa increases, defying global trend for 2012; FDI flows to African countries increased by 5% to US$50 billion in 2012 even as global FDI fell by 18%

- UNCTAD/PRESS/PR/2013/026

Eneni Oduwole - NIFEx USA, 2013

4 Pillars of Financial Services Sector Reforms

• Pillar 1: Enhancing the quality of banks– Implementation of Risk-based supervision– Reforms to regulations and regulatory framework– Enhanced provisions for consumer protection– Internal transformation of the CBN

• Pillar 2: Establishing financial stability– Strengthening the financial stability committee within the CBN– Establishment of a hybrid monetary policy with macro-

prudential rules– Development of directional economic policies and counter-

cyclical fiscal policies by the Government– Further development of Capital markets as an alternative to

bank funding

Eneni Oduwole - NIFEx USA, 2013

4 Pillars of Financial Services Sector Reforms (cont’d)

• Pillar 3: Enabling healthy financial sector evolution– Creation of Asset Management Corporation of Nigeria (AMCON); mopped up

over N3.0trillion of Non-Performing Loans; received various international awards for sanitizing the Banking Sector

– Universal Banking Model restructured into International, National, Regional Banking categories with mono-line and specialized licenses

• Pillar 4: Ensuring the financial sector contributes to the real economy– Banks now expected to engage the real economy through initiatives such as:

Development Finance Foreign Direct Investment Venture Capital Public Private Partnerships

In addition, the 3 Pillars for effective risk-based supervision stipulated in the Basel II Guidelines are currently implemented in Nigeria

Eneni Oduwole - NIFEx USA, 2013

Basel Compliance

• Pillar 1: Min. Capital Requirements & Regulatory View– Banks now required to determine risk weighted assets, and

make a holistic risk based capital charge covering Credit, Market and Operational Risk charges

• Pillar 2: Supervisory Review & Internal Capital Adequacy Assessment Process– Banks conduct self assessments of risk profiles to ascertain

required risk-based capital– CBN/NDIC reviews and approves assessment processes

adopted by Banks, and advises on evaluated composite risk ratings

• Pillar 3: Market Discipline– CBN published a minimum disclosure framework for public

awareness of proprietary risk management status by Banks

Eneni Oduwole - NIFEx USA, 2013

Concerns• Ownership rights and Repatriation of profits unhindered

– These have been clearly defined by the Nigerian Investment Promotion Council (NIPC), and it takes into cognisance the requirements of relevant regulatory agencies

– Equal treatment of foreign and domestic private investment by most sectors

• Effectiveness of Supervisory Framework– Recruitment of skilled professionals by Regulatory Agencies– Reduced regulatory volatility– Review of Prudential Guidelines to encourage on lending to growth

sectors– Increased alignment with best global practices (PCIDSS, ISO, BCI,

DRI certification, introduction of Sustainable banking principles in 2012)

– Stringent enforcement of AML regulation and monitoring; FATF visited Nigeria recently with a view to certifying Nigeria to be AML-compliant

Eneni Oduwole - NIFEx USA, 2013

Concerns (cont’d)• Socio-Political Issues / Stability of Government

– Successive change of government since 1999– Resolution of Niger-Delta crisis through the Amnesty Programme– Boko Haram currently being managed by the Joint Task Force;

threats contained in mostly the North-Eastern region of Nigeria; vibrant economic zones such as Lagos, Abuja, Port-Harcourt, Onitsha are insulated

– Introduction of National Identity Management System; to be fully implemented in 2014

• Business Sustainability– Close monitoring of business activities of financial institutions– Allowing for different levels of capitalisation and business scope;

this allows institutions to be focused and strategic – Existence of Credit Bureau for Banks to confer with on status of

borrowers industry-wide

Eneni Oduwole - NIFEx USA, 2013

Evolving Business Models / Strategies

• Curtailed high risk lending • Lower NPL ratios (ranging between 2.9% - 5%)• Banks depend less on public funds but support real sector

growth• Borderless banking (accounts can be operated globally)• Use of e-channels to service all customers• Innovative customer on-boarding (Social Media banking,

Agent banking)

Various Global Awards to the Governors of the Central Bank of Nigeria for proactive and smoothly

implemented Financial Services Sector Reforms

Eneni Oduwole - NIFEx USA, 2013

Thank you…Thank you…

13

Contact details:E-mail – eneni.oduwole@gtbank.com

Tel.: 234-8033045896

Eneni Oduwole - NIFEx USA, 2013

References

•Afrinvest Special Report on Nigerian Banking Sector – July 2013

•World Bank Reports on Nigeria•CBN Reports•This Day Newspaper•www.nipc.gov.ng•www.indexmundi.com