EXCLUSIVE: Why auditors in banking industry should be increasingly observant to macroeconomic trends – Demola Sogunle
The Chief Executive, Stanbic IBTC Holdings PLC, Dr. Demola Sogunle has urged auditors in the banking industry to be more observant to macroeconomic to effectively assess and manage risks within the sector.
According to him, the susceptibleness of organisations, particular banks to external factors beyond their immediate control makes the adoption of comprehensive and dynamic approach to risk assessment and management important.
Sogunle spoke on Wednesday as Chief Host of the 55th Quarterly General Meeting of the Association of Chief Audit Executives of Banks in Nigeria (ACAEBIN) held at Radisson Blu, Victoria Island, Lagos.
ACAEBIN is the umbrella body of all Heads of Internal Audit of Banks and Mortgage Institutions, Development Banks including the CBN, NIBSS, FITC, etc.
The meeting was themed: ‘Assessing Organisational Risks with Macro and Global Economic Lens – The Role of Internal Audit’.
The Stanbic IBTC Holdings boss in his keynote address enumerated in details reasons banks are more susceptible to macroeconomic risks and why Internal Auditors must stand up squarely for the challenge. These include; Economic Interdependence, Credit Risk and Loan Portfolios, Interest Rate Sensitivity, Regulatory Environment, Systemic Risk, Asset Quality, Funding and Liquidity.
“Banks are an integral part of the financial system and the broader economy. They have extensive connections with and interdependencies on other financial institutions, businesses, and individuals. Changes in macroeconomic conditions can have a significant impact on the overall health and stability of the banking sector. Auditors need to understand these interconnections and assess the potential ripple effects of macroeconomic changes on banks’ operations, financial positions, and risk profiles,” Sogunle explained.
On Credit Risk and Loan Portfolios, the seasoned banker said: “Banks are primarily engaged in lending activities, and their profitability relies heavily on the performance of their loan portfolios. Macroeconomic conditions, such as economic downturns or industry-specific downturns, can increase credit risk. During periods of economic uncertainty, borrowers may face financial difficulties, leading to higher default rates. Auditors must scrutinize banks’ loan portfolios, assess the credit risk management practices, and evaluate the adequacy of loan loss provisions to ensure that banks are adequately prepared for potential loan losses.”
Sogunle while highlighting the role of internal auditors in assessing organizational harped on adoption of comprehensive approach that considers macro and global economic factors.
“Monitoring and analyzing macroeconomic indicators, such as GDP growth rates, inflation, and employment levels, provide valuable insights into the overall health and stability of the economy. Internal audit teams can leverage this information to assess the potential impact of macroeconomic fluctuations on the organization’s operations and identify areas of increased risk.”
Amongst others, the University of Ibadan alumnus also tasked internal audit teams on staying abreast of information about global regulations, trade agreements and other issues.
“Internal audit teams must stay informed about global regulations, trade agreements, and policies that shape the operating environment for businesses. By understanding global regulatory and policy risks, internal audit can assess compliance requirements, identify potential gaps, and recommend necessary actions to ensure the organization remains compliant with international standards.”
“Assessing organizational risk with a macro and global economic lens is very essential for banks and businesses in today’s interconnected global economy. By considering macroeconomic indicators, global economic trends, regulatory changes, geopolitical risks, and technological advancements, organizations can gain a comprehensive understanding of the risks they face. Internal audit plays a vital role in this process, helping organizations identify, understand, and mitigate risks, ensuring long-term resilience and success,” the Stanbic IBTC Holdings Chief Executive concluded.
Meanwhile, chairman of ACAEBIN, Felix Igbinosa in his welcome address said Auditors have the onerous responsibility of ensuring risks are properly identified and dimensioned to provide assurance on the effectiveness of the risk management process. He said ACAEBIN will continue to support member organisations in that regard.
“The theme of today’s session could not have come at a better time especially as businesses continue to grapple with emerging business risks aftermath of recent policy pronouncements of the Federal Government with respect to Exchange rate parity and Petroleum subsidy removal just to mention a few, which continues to impact businesses’ financial stability. As processes and operations are becoming more complex, new risks are emerging and as Auditors, it is our duty to ensure that these risks are properly identified and dimensioned to provide assurance on the effectiveness of the risk management process.
“On our part as an Association, we will continue to use all available means to encourage, empower and support our members and their internal audit team, especially in closing the skills gap and providing them with the right tools that will enable them to perform their roles effectively and efficiently in line with stakeholders’ expectations. Also, at the heart of this Association, is our effort at improving cooperation and information sharing among members, especially in the area of fraud. Also, we will continue to partner with the relevant law enforcement agencies while also closing gaps that create room for these criminals to take advantage of the system.”
