Banks and other financial institutions need better risk management structure to deepen banking penetration and security, financial market dealers have said.
In a communique at the end of the seminar organised by Financial Markets Dealers Association (FMDA) Bonds Workgroup in Lagos, the group said risk management needs more attention, and that the futures market should be deployed to deepen risk management.
“Futures market in Nigeria will further support the Government on achieving the targets set out in the Economic Recovery and Growth Plan (ERGP). Improve risk management tools to better serve the opening-up of the financial services sector towards global competitiveness – effectively deployed, will mitigate the risks to which market operators including governments are exposed to,” it said.
Speaking on the theme: The Nigerian futures market – A tool for risk management, Debt Management Office (DMO) Director-General Patience Oniha said the debt office remains committed to the development of the financial market. She said by issuing the 30-year bond, the debt office has showed confidence in the economy.
“While one of our primary responsibilities is to raise money for government, we realised that the government alone cannot develop the economy. It in attempt to develop the market and support the private sector the DMO is committed to it. In introducing the 30-year bond, obviously, we monitored developments in the market and the demands of investors, the trends in inflation and monetary policy indicators of which direction the economy is going,” she said.
Continuing, she added: “And I think that the important thing for the 30-year bond is that it is not only government raising 30-year money, but creating a 30-year benchmark that supports the economy.The private sector can raise money because there is now a reference point for private sect or to raise a 30-year bond.”
Also, FMDQ OTC Securities Exchange Managing Director/CEO, Bola Onadele, said the operators were doing their best to deepen the derivatives and futures market.
Speaking on the theme: Futures as a an asset & liability management tool, he added: “We are looking at futures as a tool for asset/liability management. Of course, you know banks have to focus on managing their assets and liabilities. And there are six elements in that. Managing the balance, managing the funds transfer, managing the capital, institutions, compliance, law and regulations. All those things come under the purview of asset and liability management. But, the one that is most visible that people talk about is the mismatch that come in interest rate. The banks can borrow short-term and lend long term. Nigeria has just issued 30-year bond, and pension funds and banks bought 30-year bonds.
“They did not use 30-year money to buy 30-year assets so that they do not mismatch it.’’
He added: ‘’But what is important, which you see in other climes, are risk management tools. When you have taken such position, how do you hedge the exposure you have? And this exposure come as interest rate risk, foreign exchange rate risk, which you know the CBN promoted the Forex Futures. So, what we are dealing on here are other types of futures or commodities.
Onadele said in the past, 2017 and last year, the banks had loans towards margin lending for equities.
“So, the risk factors, interest rate risk, foreign exchange risks, equity price risk and commodity price risk are called risk factors and banks have to deal with them in managing their balance sheets and financial positions, which are highly dynamic everyday.