THE EFFECT OF RISK MANAGEMENT IN THE NIGERIAN BANKING INDUSTRY

ABSTRACT
The global phenomenon in the financial service industry is the consolidation of the
financial activities towards ensuring financial stability. It is occurring at a rapid pace
due to changes in economic environment, which often alter the constraints faced by
financial service firms. At the same time, the changes is battling to combat poor risk
asset management which has been established by some studies to be the basic cause of
bad debt, a major distress syndrome in the banking industry. The scenario has been
argued to be a factor that downsizes banks’ profitability within any fiscal year and
often times destroys customers’ confidence in banking. The present study attempted an
evaluation of the effect of risk management in the Nigerian Banking industry in this
era of consolidation. The major objectives were to determine the relationship between
the income of banks and the volume of their risk assets; evaluate the effect of loan
repayment on the profitability of banks; and lastly, to determine the impact of loan
repayment on loanable funds available in the Nigerian banks. By employing the survey
research method, the study used questionnaire instrument to generate the primary data
needed for the study.

The generated data were further subjected to chi-square
inferential statistical test to determine if the null hypotheses formulated in chapter one
were either validated or nullified. Testing at 95% confidence level with 8 degree of
freedom, the null form for hypothesis one was not rejected. This implies that there is a
negative relationship between banks income and the volume of their risk assets. But
the null form for hypothesis two was rejected. The result showed that Loan Repayment
has Positive effect on the bank’s profitability. Lastly, the null for the third hypothesis
was not again rejected. The implication was that Loan Repayment negatively affects
the availability of loanable funds in banks. The findings of this study justify the fact
that loan is the engine that drives money creation in the economy. Due to this crucial
role, the study recommends among other things that banks should develop effective
mechanism to overcome default risks and other information asymmetries.

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