Abstract
Customers of the banks expect their bankers to provide them with loans and advances to make up any short fall in their funds requirement for transactional motive. This project is sub-divided into five chapters, which focuses on risk management in Nigeria Banking Sector. Questionnaires were distributed to collect the relevant information from the respondents, percentage and chi-square method were employed and hypotheses testing was carried out, it was discovered that there is risk in the bank sector which enabled the researcher to conclude that there is risk in bank lending and because the rules of lending are not often followed when granting credit facilities to their customers. It was however recommended that there is need to employ more competent staff to the risk management department.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Banks are germane to economic development through the financial services they provide. Their intermediation role can be said to be a catalyst for economic growth. The efficient and effective performance of the banking industry over time is an index of financial stability in any nation. The extent to which a bank extends their operation to the public for productive activities accelerates the pace of a nation’s economic growth and its long-term sustainability (Kolapo, Ayeni & Oke, 2012). In the 21st century business environment is added multifaceted and intricate than ever. The majority of businesses have to trade with uncertainties and qualms in every dimension of their operations. Without a doubt, in the present-day’s unpredictable and explosive atmosphere all the banks are in front of a hefty risks like: credit risk, liquidity risk, operational risk, market risk, foreign exchange risk, and interest rate risk, along with others risks, which may possibly intimidate the survival and success of the bank’s Corporate Performance. The Nigerian banking industry has been strained by the deteriorating quality of its risk related assets as a result of the significant dip in equity market indices, global oil prices and sudden depreciation of the naira against global currencies.The poor quality of the banks’ loan assets hindered banks to extend more credit to the domestic economy, thereby adversely affecting economic performance. This prompted the Federal Government of Nigeria through the instrumentality of an Act of the National Assembly to establish the Asset Management Corporation of Nigeria (AMCON) in July, 2010 to provide a lasting solution to the recurring problems of non-performing loans that bedeviled Nigerian banks (Kolapo, Ayeni & Oke, 2012).
In the last few years, Nigerian banking industry suffered an historic retrogressive trend in both profitability and capitalization. Just 3 out of 24 banks declared profit, 8 banks were said to be in ‘grave’ situation due to capital inadequacy and risk asset depletion; the capital market slummed by about 70 percent and most banks had to recapitalize to meet the regulatory directive. This drama in the banking sector eroded public confidence in banking and depositors funds aggregately dropped by 41% in the period. Possibly due to financial liberalization and globalization, the fact is there has been a reckless abandonment of the essentials of managing risk in times of economic boom and recession; the volatility of bank earnings has been under-rated by bank managements. The central monetary authorities also impacted negatively on stability of the sector. The auditing exercise was a very good one but the sanctity and policy implementation mode was bad considering the nature of the Nigerian economy. Basically, bank objectives revolve around 3 directions: profitability, growth in asset and customer base. Aremu, Suberu and Oke (2010) pointed out that the major problem of bank management is the mis-prioritization of short term goals over its long term objectives. While the profitability centres on the quality of short term reprievable assets and liabilities, net worth expansion which is the equity capital, is a function of total asset and liability. In Nigeria, it has been observed that most bank managers have focused more on profitability (which usually is a short term objective), with little attention on risk managing the quality of assets which has better impact on the long term sustainability of a financial institution. The risks that are faced by businesses can be categorized into financial and non-financial risks. Both of these types of risks are very vital in order to safely run any business.