As one of the most regulated industries in the world, banks are under pressure to not only comply with constantly changing regulations but also to modernise their systems, so that they can reduce compliance costs, improve efficiency and effectiveness in risk management processes, stay competitive in the age of the FinTech, and be innovative on risk assessments during new product development, to better serve their customers.
Banks in Africa face additional challenges, including risk analytics skills shortages, data management issues and integrating their risk management and finance processes across the enterprise. But, on the positive side, they have started considering technology as away of eliminating these challenges and have access to new streams of data that are also helping to advance the financial inclusion mandate, says Charles Nyamuzinga, senior business solutions manager, pre-sales risk practice, SAS.
Nyamuzinga who spoke at the SAS Risk & Finance Analytics Roadshow in Lagos last Tuesday says that” SAS as a technological partner for banking institutions has always played a proactive role in fostering innovation and transformation of processes and systems, from regulatory compliance to strategic decisions support, from digitisation to risk assessment in real-time. Analytics solutions allow banks to adapt more quickly to regulatory changes minimising costs.”
As with banks all over the world, African banks should already be compliant with the new IFRS 9 accounting standard, which changes the way they calculate expected credit losses.
There is also need to start thinking about the new ‘Basel IV’ framework, which impacts on how banks calculate their risk weighted assets and the amount of capital they need to offset those risks.
Another source of regulatory pressure that banks are grappling with are the requirements, questions and challenges related to conducting stress tests, as the regulators become more stringent on stress testing processes.
Technology experts and bankers present at the SAS roadshow unanimously agreed that the biggest causes of incorrect modelling are data management and quality issues and skills shortages. Banks have to obtain and analyse enormous amounts of detailed data and to comply with IFRS 9, banks must look at millions of customers with hundreds of data points.
Typically, banks in Africa draw data from a number of disparate systems, thus impacting on the quality of the data used. For example, the credit department may come up with different figures to the risk department, making it difficult to know which data to trust.
If a bank miscalculates an individual’s credit score, for example, it could end up granting a loan to someone who can’t afford to repay it, which has implications for IFRS 9 expected credit loss calculations.
Data gathering and manipulation from disparate data sources wastes time and resources that banks could have used to develop new products and find more convenient ways to serve their customers – something their competitors in the FinTech space are very good at.
Banks need to modernise and integrate their risk management systems if they hope to stay relevant in a rapidly changing market. Compliance is no longer their single biggest consideration.
Their technology should help them quickly adapt to regulatory changes, promote enterprise-wide collaboration in risk management activities to enhance risk management strategies, uncover new revenue streams, manage costs and improve their customer.
Jumoke Akiyode-Lawanson
