08165312322, 08182677240, 08165312322
hello@myproject.com.ng

ANALYSIS OF RISK MANAGEMENT ON THE PERFORMANCE OF BANKS IN NIGERIA

 3,000

Sold By: myProject

RESEARCH INFORMATION

[icon type=”icon-pencil”]: ANALYSIS OF RISK MANAGEMENT ON THE PERFORMANCE OF BANKS IN NIGERIA
[icon type=”icon-book”]: Chapter 1 – 5
[icon type=”icon-book-open”]: 61 Pages
[icon type=”icon-basket”]: #3, 000
[icon type=”icon-doc-line”]: Ms Word format

This study, ANALYSIS OF RISK MANAGEMENT ON THE PERFORMANCE OF BANKS IN NIGERIA contains concise information that will serve as a framework or guide for your project work. The project study is well-researched for academic purposes and are usually provided in complete chapters with adequate References.

Keywords: ANALYSIS OF RISK MANAGEMENT ON THE PERFORMANCE OF BANKS IN NIGERIA


RESEARCH BODY

CHAPTER ONE

INTRODUCTION

  • BACKGROUND OF THE STUDY

The Banking sector has a pivotal role in the development of an economy. It is the key driver of economic growth of the country and has a dynamic role to play in converting the idle capital resources for their optimum utilisation so as to attain maximum productivity (Sharma, 2003). In fact, the foundation of a sound economy depends on how sound the Banking sector is and vice versa. The banking industry has achieved great prominence in the Nigerian economic environment and it influence play predominant role in granting credit facilities. The probability of incurring losses resulting from non-payment of loans or other forms of credit by debtors known as credit risks are mostly encountered in the financial sector particularly by institutions such as banks. The biggest credit risk facing banking and financial intermediaries is the risk of customers or counter party default. During, the 1990s as the number of players in banking sector increased substantially in the Nigerian economy and banks witnessed rising non-performing credit portfolios. This significantly contributed to financial distress in the banking sector. Also identified was the existence of predatory debtor in the banking system whose modus operandi involves the abandonment of their debt obligations in some banks only to contract new debts in other banks.

As risk is directly proportionate to return, the more risk a bank takes, it can expect to make more money. However, greater risk also increases the danger that the bank may incur huge losses and be forced out of business. In fact, today, a bank must run its operations with two goals in mind – to generate profit and to stay in business (Marrison, 2005). Banks, therefore, try to ensure that their risk taking is informed and prudent. Thus, maintaining a trade-off between risk and return is the business of risk management. Moreover, risk management in the banking sector is a key issue linked to financial system stability. Unsound risk management practices governing bank lending often plays a central role in financial turmoil, most notably seen during the Asian financial crisis of 1997-981.

Banks  and  other  financial  intermediaries  play  the  important  role  of  channelling  funds  from  savers  to  borrowers.  The traditional  role  of  a  bank  is  lending  and  loans  make  up  the  bulk  of  their  assets.    The  various  areas  of  financial management have been studied in relation to bank performance and growth usually depicted by profitability. Financial institutions (particularly deposit money banks) have faced difficulties over the years for a multitude of reasons and the major  cause  of  serious  banking  problems  continues  to  be  directly  related  to  lax  credit  standards  for  borrowers  and counterparties, poor portfolio risk management, or lack of attention to changes in economic or other circumstances that can lead to a deterioration in the credit standing of a bank’s counterparties (Gil-Diaz,1994).  In  unstable  economic environments, bank earnings are fast overtaken by inflation and borrowers find it difficult to repay loans as real incomes fall, insider loans increase and over concentration in certain portfolios increases giving rise to credit risk. (Chen and Pan, 2012; Lindergren, 1987).

Bank  failures  in  Nigeria  and  other  emerging  economies  have  been  attributed  to  improper  lending  practices,  lack  of experience, organizational and informational systems to adequately assess credit risk in the falling economy (Gil-Diaz, 1994,  Ahmad  and  Ariff,  2007;  Kolapo,  Ayeni  and  Oke,  2012).  There  is  sufficient  empirical  evidence  that  poor performance is manifest in banks as indicated by low bank performance indicators including: high levels of credit risk, poor  quality  loans,  limited  and  or  inadequate  capitalization,  operational  inefficiencies,  higher  incidences  of non-performing loans, higher levels of liquidity risk, and so on. Although these are mentioned as constraints affecting banks’  performance,  they  are  based  on  a  few  studies  and  non-elaborate  methods  to  generate  sufficient  and  valid conclusion. The financial network of mutual credit obligations stemming from liquidity management, re-financing, hedging, and security trading creates a potential for contagious insolvencies or domino-effects on top of the common exposure problems. To get a reliable assessment of credit risk for banking systems this network structure has to be taken into account.

  • STATEMENT OF THE PROBLEM

The advent of the Financial Services Modernization Act of 1999 was embraced with a lot of excitement by all in the banking sector. The present possibility for banks to diversify into broader range of services and products make life really cool for banking entrepreneurs and managers. But this diversification advantage is a once in a life opportunity that should be consumed with some cautions and prudence as this involves a great deal of risk. The very nature of the banking business is so sensitive because more than 85% of their liability is deposits from depositors (Saunders, Cornett, 2005). Banks use these deposits to generate credit for their borrowers, which in fact is a revenue generating activity for most banks. This credit creation process exposes the banks to high default risk which might lead to financial distress including bankruptcy. The pervasive incidence of non-performing loan is one of the prime causes of failure in the banking system. The CBN last three years released the lists of debtors some of those loans are uncollateralized and run into billions of naira. The internal exams to ascertain if loans are well collateralized and self-liquidating could not be held accountable. Although the recent CBN audit uncovered those large non-performing loans, these should have been flagged by previous audit report if adequate checking were made.

Another serious problem is the customer’s default in repayment of credits which causes a reduction in the bank’s earnings for the period. Hence, this in turn reduces the amount of credits which the bank can grant to prospective loan applicants. All the same, beside other services, bank must create credit for their clients to make money, grow and survive stiff competition at the market place.Adequately managing credit risk in financial institutions is critical for the survival and growth of the Financial Institutions. In the case of banks, the issue of credit risk is of even of greater concern because of the higher level of perceived risks resulting from some of the characteristics of clients and business conditions that they find themselves in. But unarguably, financial institutions have faced difficulties over the years for a multitude of reasons, the major cause of serious banking problems continues to be directly related to lax credit standards for borrowers and counter parties, poor portfolio risk management, or a lack of attention to changes in economic or other circumstances that can lead to a deterioration in the credit standing of a bank’s counter parties. This is because credit risk is those risks that can easily and most likely prompts bank failure. Therefore, credit risk management needs to bea robust process that enables Financial Institutions to proactively manage facility portfolios in order to minimize losses and earn an acceptable level of return for shareholders Dandago (2006).The principle concern of this study is to ascertain the extent of risk management on profitability of banks in Nigeria.

1.3       OBJECTIVES OF THE STUDY

The main objective of the study is to analyzerisk management on the performance of banks inNigeria. More specifically, the study aimed at achieving the following objectives:

  1. To determine the effect of credit risk on the profitability of banks in Nigeria.
  2. To examine the relationship between interest income and bad debt of banks in Nigeria.
  3. To examine the relationship between performance (ROA) and the non– performing loans of banks in Nigeria.
  4. To establish the relationship between performance (ROA) and capital adequacy ratio of banks in Nigeria.

1.4       RESEARCH QUESTIONS

The following research questions were raised following the objectives.

  1. Does credit risk have effect on banks profitability?
  2. Is there significant relationship between interest income and bad debt of banks in Nigeria?
  3. What relationship exists between performance (ROA) and the non– performing loans of banks in Nigeria?
  4. What relationship exists between performance (ROA) and capital adequacy ratio of banks in Nigeria?

1.5       HYPOTHESIS OF THE STUDY

The hypothesis to be tested is stated below:

Ho: Risk management does not have significant effect on the performance of banks (ROA) in Nigeria.

H1: Risk management does have significant effect on the performance of banks (ROA) in Nigeria.

1.6       SCOPE OF STUDY

The study will be conducted on three banks in Nigeria which are UBA, First bank and GTBank plc, being specifically targeted and it will cover a period of five(5) years (2010-2014). Therefore, the secondary data are in respect of the annual and financial reports of the selected case study.

1.7       SIGNIFICANCE OF THE STUDY

The significance of this study is that, it will enable banker to appreciate the appraisal of their lending and control mechanism now that they are expected to lend under tight monetary conditions. In essence, finding from the study will assist management and regulatory authorities in ensuring a safe banking since development of country’s economy is tied to performance of financial institutions of such country.This work will in no doubt will add and contributed to the already similar literature in abound. It will help researchers who will work further on this problem to afford them with material and act as a searchlight for those who are interest to duel on it for practical application.

1.8       RESEARCH METHODOLOGY

The research work employed non-experimental design. Secondary sources of data are used in which bank prospectus, annual reports and accounts, centralbank of Nigeria bulletin on prudential guidelines are themajor components. The study population is the twenty-one(21) commercial banks in Nigeria of which the sample size are UBA, First Bank, GTBank in which judgmental or purposive sampletechnique was used to select the bank. Linear graph willbe used to give a clear graphical relationship betweenrisk assessment and bank performance. Simple linearregression and Pearson coefficient for correlation methods are used to test the nature of the relationshipand the strength of such relationship as it’s partially affected by other factor through the use of SPSS 20.

1.9       ORGANISATION OF THE STUDY

The study is divided into five (5) chapters and organized as follows:

Chapter one form the introduction part, this is where the main theme of the research is given. It comprises of the statement of the problem, objectives of the study, research questions and hypotheses, significance of the study, scope of the study, research methodology and plan of the study.  Chapter two is the literature review on analyzing risk assessment on banks performance. Chapter three forms the research methodology which includes sources of data, method of data analysis and model specification.  Chapter four is the data analysis while chapter five includes the summary, conclusion and recommendations.

1.10     DEFINITION OF KEY TERMS

RISK: Risk refers to ‘a condition where there is a possibility of undesirable occurrence of a particular result which is known or best quantifiable and therefore insurable’ (Periasamy, 2008).

RISK MANAGEMENT: Risk management is defined as the minimization of the potential that a bank borrower or counter-party will fail to meet its obligations in accordance with agreed terms.

RISK ASSESSMENT: Risk assessment is a process to identify potential hazards and analyze what could happen if a hazard occurs and determine appropriate ways to eliminate or control the hazard.

BANKING SECTOR: Banking sector is the section of the economy devoted to the holding of financial assets for others, investing those financial assets as leverage to create more wealth, and regulation of those activities by government agencies.

Keywords: ANALYSIS OF RISK MANAGEMENT ON THE PERFORMANCE OF BANKS IN NIGERIA



[divider height=”30″ style=”default” line=”default” themecolor=”1″]

[alert style=”warning”]NOTE: INSTANT DOWNLOAD SERVICE [/alert]

Have you made payment for this project? If YES, Get a Download Code by contacting our Customer Care.

For further enquiries, call our Hotlines: (+234) 0816-531-2322, 0811-998-2823

[divider height=”30″ style=”default” line=”default” themecolor=”1″]

PROJECT TOPICS AND MATERIALS | HIRE A WRITER | HOW TO PAY FOR PROJECT

Keywords: ANALYSIS OF RISK MANAGEMENT ON THE PERFORMANCE OF BANKS IN NIGERIA

Not the topic you are looking for? Search here




Choose what you want by category

PROJECT TOPICSHIRE A WRITER
CUSTOMIZED ESSAYFREE ONLINE COURSES
MAKE PAYMENT(S)DOWNLOAD PROJECT(S)





Need Help? Chat with us