2016 RISK OUTLOOK X-RAY's POTENTIAL THREATS TO BUSINESS STRATEGIES

1. Introduction:
2016 has shown worsening trends
in global economic and political
climate especially with some
developed economies like Russia
siding into recession. China stock
market crash has also led to
skepticism towards investing in
emerging markets due to high
volatility in the business climate.
Oil price has also been projected
to hit the lowest mark of $20 per
barrel in 2016 which will further
jeopardize economic
development in countries whose
major source of revenue is from oil
proceeds like Nigeria.
2016 risk outlook highlights existing
and emerging threats that could
hinder the achievement of
strategic goals of Banks. They are
as follows;
1. UNFAVORABLE MACRO
ECONOMIC ENVIRONMENT
Global markets are reacting
negatively to decline in crude oil
price with some key stocks in
European and Asian markets
recording significant losses. This
singular event has diminished
Government revenue whose
primary source is from crude oil
exports and could limit the
implementation of the economic
roadmap. Infrastructural
development, fight against
corruption, security and
stimulating other sectors of the
economy require substantial
investments whose funding
currently depends on proceeds
from crude sales.
2. CYBERSECURITY THREATS
These are malicious acts
originating from anonymous
sources aimed at stealing,
altering or destroying information
resources. Billions are lost annually
to cyber-attacks due to the level
of sophistication of cyber
criminals and unwillingness of
service providers/ organizations
to adopt and implement stringent
security measures. Vulnerability of
the industry could expose services
such as interbank payments, e-
channels transactions and even
the banking application to
cyberattacks.
3. MONEY LAUNDERING
The anti-corruption war and
stringent regulatory policies has
introduced anxiety among
Government officials who
misused public funds in the
previous administration. There will
be great tendency to disguise
and distribute illicit wealth
obtained within financial
institutions, to make funds appear
legitimate.
4. TECHNOLOGY RISK
Threats to technology in 2016
include outdated core banking IT
systems, failure to keep pace with
technological advancement,
service disruptions, obsolescence
of systems, bungled upgrades,
system outages, and pioneering
untested software/ systems.
5. POLITICAL INTERFERENCE
Government intervention in
banking activities could arise
from the need to raise revenues
to fund budgets and directing
lending to critical sectors of the
economy. Governments of
developed economies could
impose sanctions on developing
economies and restrict banks
from extending credit lines to
counterparts.
6. CREDIT RISK
Decline in oil price and stringent
business climate could trigger
default risk especially in Oil & Gas
exposures in Banks. Poor pricing of
loans; volatility of interest and
exchange rates; and poor credit
culture are other factors that will
worsen organizations’ exposure
to credit risks.
7. CONDUCT RISK
This is attributed to unethical
business practices undertaken by
employees that damages the
reputation of an organization. The
drivers of conduct risk include
poor customer service and sales,
absence of culture change, poor
incentives structure, failure to
attract and retain talent.
8. SHADOW BANKING
Shadow banks are non-bank
institutions that offer bank-type
services such as loans,
investments and payment
services at reduced rates. Rapid
growth of the shadow banking
sector, its competitive
advantages and lack of
regulation will threaten earnings
and business models of financial
institutions during the year under
consideration.
9. LIQUIDITY RISK
Inability to convert securities/
assets to cash without loss of
capital and/or income may
resurface in 2016 due to excessive
lending activities, decline in
deposits, hike in
regulatory/economic capital
requirements, and poor balance
sheet management.
10. OUTSOURCING
Reliance on third parties to
provide critical services or
resources such as personnel, IT,
operations, etc. could expose
financial institutions to disruption
or disaster.
Suggested action plan
To manage these threat, the
following actions and more
should be taken;
 Aggressive deposit
mobilization and customer-
base growth
 Seeking opportunities in the
essential and high growth
sectors of the economy such
as agriculture, infrastructure,
education etc.
 Enhanced service delivery
and culture transformation
 Optimal utilization of security
tools and complying with
policies.
 Innovation and flexibility
towards defining products
and services that will address
stakeholders’ specific needs
 Proactive management of
risks and identification of
opportunities
Conclusion:
Majority of the highlighted threats
to the achievement of strategic
goals have been managed
successfully in the past but with
emerging trends in global
financial sphere, the risks could
escalate beyond expectations
and have debilitating effect on
unprepared institutions. Let us
“Think Risk and Reap Rewards”
Prepared by Ugonna C. Ugoala
2016 RISK OUTLOOK FOR ORGANISATIONS