CHAPTER ONE
1.1 Background To The Study
The issue of risks constitute the great challenges confronting banking operations .The bank is characterized by different kinds of risk which if not properly managed could lead the bank to great loses. The banking sector in Nigeria has over a long period suffered from loses attributed to the inability to effectively manage its risk portfolio. According to Webster comprehensive dictionary risk is defined as the possibility of incurring loss, harm, danger. Risks are those factors with the potential to cause harm or loss to one or more planned objectives. NDIC annual report and statement of account in 1981 classified loans and advances or bad debts amounted to 9.4 billion which constitute as one of the reason for the CBN introduction of the prudential policy for banks.
According to Cooker (1989:115), The bank intermediation role is to collect deposit from the surplus unit of the public and lend to the deficit unit of the public. Consequently bank management has consistently shown interest in the management of risk with the aim of improving the risk analysis, measurement and management capacity of firms in the banking sector. The research therefore seek to investigate risk management a critical tool in banking
1.2 Statement of the Problem
The lending functions of the bank cannot be divulged from the operation of the bank as it constitute one of the constitutional obligation of the banking sector as means of providing the needed fund for business and other legitimate business activities. However if loanable fund are properly managed they contribute immensely to the profit and growth of the bank. However the granting of loanable fund by banks to investors and other customers goes with some certain level of risk especially in developing economies like Nigeria. The level of risk attributable to loans in Nigeria is high due to the nature of the economic standard of the nation. The issue of risks constitute the great challenges confronting banking operations .The bank is characterized by different kinds of risk which if not properly managed could lead the bank to great loses. The banking sector in Nigeria has over a long period suffered from loses attributed to the inability to effectively manage its risk portfolio. According to Webster comprehensive dictionary risk is defined as the possibility of incurring loss, harm, danger. Risks are those factors with the potential to cause harm or loss to one or more planned objectives. NDIC annual report and statement of account in 1981 classified loans and advances or bad debts amounted to 9.4 billion which constitute as one of the reason for the CBN introduction of the prudential policy for banks.
Consequently since the granting of loans are indispensable in the operations of banks it is important that risk management be given serious attention so as to avert plunging the bank into crisis. The crisis experienced in the banking sector in Nigeria prior to the consolidation policy in 2004 by the CBN constitute a point of reference for banks to redress the risk of loanable fund so as to maximize the benefit of performing loans in the sector.Therefore the problem confronting the research is to appraise risk management a critical tool in banking
1.3 Objectives of the Study
To determine risk management a critical tool in banking
The issue of risks constitute the great challenges confronting banking operations .The bank is characterized by different kinds of risk which if not properly managed could lead the bank to great loses. The banking sector in Nigeria has over a long period suffered from loses attributed to the inability to effectively manage its risk portfolio. According to Webster comprehensive dictionary risk is defined as the possibility of incurring loss, harm, danger. Risks are those factors with the potential to cause harm or loss to one or more planned objectives.
1.4 Research Questions
What is the level of risk in banking?
What is risk management in banking?
What are the policies and measures to mitigate risk in banking?
1.5 Significance of the Study
The study highlight the nature of risk in the banking sector and the measures adopted in the mitigation of such risk.
1.6 Research Hypothesis
Ho Risk management in banking is not effective
Hi Risk management in banking is effective
1.7 Scope of the Study
The study focuses on the appraisal of risk management as a critical tool in banking
1.8 Limitations of the Study
The factors which constituted as constraint included logistics and geographical constraint
1.9 Definition of Terms
Credit: These are the monies granted by the bank to customers with the obligation of future repayment.
Risk: These are those future unfavorable circumstances and possible losses
Portfolio Management: The is the process of managing a mix of investment in securities.
Portfolio – This constitute as the combination or collection of several securities on behalf of an investor.
Hedging: Defined hedging as a system employed to smoothen out unpredictable fluctuations in financial variables so as to aid planning and avoid embarrassment induced by cash shortfalls.
Risk Assets: These constitute the loans or facilities granted to customers
Credit Analysis: A systematic examination conducted to facilitate the decision to grant credit
Performing Credit: These are loans whose principal and interest are repaid as at when due.
Non-Performing Credit: These are loans which are not serviced according to the terms of the agreement.
Doubtful Credit: This are loans whose principal and/or interest remained unpaid for more than 180 days but less than 360 day
Lost Credit: These are the loans with unpaid principal and/or interest remaining outstanding for 360 days or more and are not secured by realizable collateral.
