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October 2006

The business environment in Nigeria is currently at the threshold of significant changes in the manner in which banking products and services are delivered following the recent increase in capitalization of banks to N25 billion and the increasing globalization of Nigerian Banks. The recent consolidation and capitalization exercise underscores the need for increased resourcefulness on the part of banks for improved service quality. The implication for the control environment in the economy necessitates a re-assessment of internal control processes and institutional framework for consistent performance improvement. Sound operational and internal control processes and consistent training of the workforce with modern techniques are therefore sine-qua-non to attainment of competitive edge needed for survival.

Recent developments have indicated that banks require improvements in establishing strong internal control process to support enlarged business brought about by increased capitalization and global competition. Bank Supervision Department of the Central Bank of Nigeria continues to turn out negative comments on routine examinations of banks. Compliance culture is continually under pressure as banks sidetrack regulatory requirements to meet financial targets. These attest to the fact that banks need to invest more efforts in processes and training to pass the test of current demand of internal control and meet the challenges of change.

We observe that banks need to imbibe the culture of risk and control self-assessment. The concept is even alien to many banks, resulting in internal control failures and poor quality of service delivery. Ability to identify and understand operational risks, and to institute appropriate controls to mitigate them, is key to improving the control environment. Banks need to imbibe the culture of risk and control self-assessment, and design policies and procedures to consistently identify risks, apply effective controls, undertake continuous self-assessments, report and monitor control issues and establish adequate corrective action process to address the issues. Thorough understanding of the process and the ability to speak one language with respect to various spectrums of risks and internal control are critical to the survival of any business organization.

The Central Bank of Nigeria and Nigeria Deposit Insurance Corporation have introduced Risk Based Supervision (RBS) Framework as a tool for its supervisory activities over the Banks. The RBS is largely risk-focused and an effort to encourage sound risk management practices by industry operators, and strengthen financial stability in the banking industry. The new approach is largely about entrenching the culture of risk and control self-assessment in the Banks. This is also the focus of Control Edge Consulting.

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