Regulatory Alerts2010-12-23 | BSD/DIR/CIR/RBS/2010/05Supervisory Framework for Banks and Other Financial Institutions in Nigeria
The provided risk matrix template is designed to assist financial institutions in evaluating and categorizing their inherent risks, management of such risks, overall risk ratings, as well as the direction and time frame of each identified risk. This risk assessment process can be a crucial element in a company's overall governance, risk management, and compliance systems by providing a structured way to evaluate the institution's key activities against its inherent risks. The matrix incorporates several key components: 1. **Materiality**: This refers to the significance of an activity in terms of financial impact or strategic importance to the overall organization. 2. **Inherent Risks**: Here, inherent risks are categorized into six primary types: Credit, Market, Operational, Liquidity, Legal, Strategic and Insurance (if applicable). Institutions must identify and assess their exposure to each of these categories. 3. **Quality of Risk Management**: This section evaluates the effectiveness of risk management strategies in managing identified risks. 4. **Net Risk**: The net risk score is a combination of materiality, inherent risks, quality of risk management and direction of risk. It is used to give an overall assessment of the risk associated with each activity. 5. **Direction of Risk**: This indicates whether the identified risk has a positive or negative impact on the institution's capital or earnings. 6. **Time Frame**: The time frame indicates when the identified risk might have an effect on the organization. It can be categorized into short, medium, and long-term risks. 7. **Composite Rating**: This rating combines all above factors to give a single overall composite rating per significant activity of the institution. The matrix is meant to be a living document that should be regularly reviewed and updated as necessary based on changes in the business environment, organization's growth or any other relevant factor.