Risk management and performance of deposit money banks in Nigeria: A re-examination
-
DOIhttp://dx.doi.org/10.21511/bbs.18(2).2023.10
-
Article InfoVolume 18 2023, Issue #2, pp. 113-126
- Cited by
- 922 Views
-
420 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Risks inherent in banking businesses should be managed to prevent financial losses to the sector’s stakeholders and negative externalities to the global economy. To this end, this study examines the effect of risk management on the performance of deposit money banks in Nigeria. A sample of eight (8) deposit money banks with international authorization are purposively selected out of 12 deposit money banks due to data availability. Panel data analysis techniques were adopted to analyze the secondary data that were obtained from the annual reports of banks. Findings based on the disaggregated model results reveal that both liquidity and capital risk variables exert a negative but insignificant effect on performance. However, credit risk drives performance of the internationally authorized banks positively and significantly. Furthermore, Management quality (MQ) is the only control variable that has a significant influence on the performance of the selected deposit money banks. The study concludes that credit risk and management quality significantly and positively drive performance among the financial entities.
- Keywords
-
JEL Classification (Paper profile tab)G20, G21, O16
-
References42
-
Tables11
-
Figures0
-
- Table 1. Variables and definitions
- Table 2. Description of variables
- Table 3. Correlation matrix
- Table 4. Regression estimate
- Table 5. Panel GLS model showing aggregated risk management variable
- Table 6. Panel GLS model showing disaggregated risk management variable
- Table7. Panel GLS model showing credit risk effect on ROE
- Table A1. Normality test of data using the Jarque-Berra test
- Table A2. Multicollinearity test
- Table A3. Test for heteroskedasticity using Cameron & Trivedi’s (2005) decomposition test for heteroskedasticity
- Table A4. Auto correlation test. Wooldridge test for autocorrelation in panel data
-
- Adekunle, O., Alalade, S. Y., Agbatogun, T., & Abimbola, C. (2015). Credit risk management and financial performance of selected commercial banks in Nigeria. Journal of Economic & Financial Studies, 3(1), 1-9.
- Adeusi, S. O., & Dada, O. (2017). Impact of credit risk management on deposit money banks performance in Nigeria. Journal of Association of Professional Bankers in Education (JAPBE), 1(1), 163-178.
- Agbada, A. O., & Osuji, C. C. (2013). An empirical analysis of trends in financial intermediation and output in Nigeria. Global Journal of Management and Business Research, 13(9), 115-125.
- Ajayi, L. B., & Ajayi, F. I. (2017). Effects of Credit Risk Management on Performance of Deposit Money Banks in Nigeria. International Journal of Research in Management & Business Studies, 4(3), 50-55.
- Ajibike, J. O., & Aremu, O. S. (2015). The impact of liquidity on Nigeria bank performance: a dynamic panel approach. Journal of African Macroeconomic Review, 5(2), 316-324.
- Akande, F. I., & Salawu, R. O. (2019). Risk management and financial performance of listed deposit money banks in Nigeria. The International Journal of Business & Management, 7(11), 151-161.
- Al-Khouri, R. (2011). Assessing the risk and performance of the GCC banking sector. International Research Journal of Finance and Economics, 65(1), 72-81.
- Bank for International Settlements (BIS). (2022). Basel III Monitoring Report.
- Bromiley, P., McShane, M., Nair, A., & Rustambekov, E. (2015) Enterprise Risk Management: Review, Critique, and Research Directions. Long Range Planning, 48(4), 225-276.
- Cameron, A. C., & Trivedi, P. K. (2005). Microeconometrics: Methods and applications. New York: Cambridge University Press.
- Ekinci, R., & Poyraz, G. (2019). The Effect of Credit Risk on Financial Performance of Deposit Banks in Turkey. Procedia Computer Science, 158, 979-987.
- Epure, M., & Lafuente, I. (2012). Monitoring performance in the presence of risk (Working Paper No. 613). Barcelona GSE.
- Harb, E., El Khoury, R., Mansour, N., & Daou, R. (2022). Risk management and bank performance: evidence from the MENA region. Journal of Financial Reporting and Accounting.
- Harcourt, E. E. (2017). Credit risk management and performance of deposit money banks in Nigeria. International Journal of Managerial Studies and Research, 5(8), 47-57.
- Holmes-Smith, P., Coote, L., Cunningham, E. (2006). Structural equation modeling: From fundamentals to advanced topics. Melbourne: SREAMS.
- Kargi, H. S. (2011). Credit risk and performance of Nigerian banks (Unpublished Thesis). Ahmadu Bello University, Zaria, Nigeria.
- Kithinji, A. M. (2010). Credit risk management and profitability of commercial banks in Kenya (Master’s Thesis). University of Nairobi, School of Business.
- Kolapo, T. F., Ayeni, R. K., & Oke, M. O. (2012). Credit risk and commercial banks’ performance in Nigeria: A panel model approach. Australian Journal of Business and Management Research, 2(2), 31-38.
- Laryea, E, Ntow-Gyamfi, M., & Alu, A. A. (2016). Nonperforming loans and bank profitability: evidence from an emerging market. African Journal of Economic and Management Studies, 7(4), 462-481.
- Malik, M. F., Zaman, M., & Buckby, S. (2019). Enterprise Risk management and firm performance: role of the risk committee. Journal of Contemporary Accounting & Economics, 16(1), 100178.
- McDowell, T., & Ferdosi, M. (2021). The Impacts of the Ontario Basic Income Pilot: A Comparative Analysis of the Findings from the Hamilton Region. Basic Income Studies, 16(2), 209-256.
- Men, Z., Kolkiewicz, A. W., & Wirjanto, T. S. (2016). Bayesian Inference of Asymmetric Stochastic Conditional Duration Models. Journal of Statistical Computation and Simulation, 86(7), 1295-1319.
- Mohammed, H. K., & Knapkova, A. (2016). The Impact of Total Risk Management on Company’s Performance. Procedia - Social and Behavioral Sciences, 220, 271-277.
- Muriithi J. G, Waweru K. M., & Muturi W. M (2016). Effect of credit risk on financial performance of commercial banks Kenya. Journal of Economics and Finance, 7(4), 72-83.
- Okere, W., Isiaka, M. A. & Ogunlowore, A. J. (2018). Risk management and financial performance of deposit money banks in Nigeria. European Journal of Business, Economics and Accountancy, 6(2), 30-42.
- Olabisi-Ayodele, Y., & Salawu, M. K. (2021). Risk management and performance of Nigerian deposit money banks. Accounting and Taxation Review, 5(1), 30-44.
- Olajide, S. F. (2017). Risk management through corporate governance: Implications on the performance of banks in Nigeria. UNILAG Journal of Business, 3(2), 147-170.
- Olamide, O, Uwuigbe, U., & Uwuigbe, O. R. (2015). The Effect of Risk Management on Bank’s Financial Performance in Nigeria. Journal of Accounting and Auditing: Research & Practice, 2015, 239854.
- Olusegun, A., Samson, A., Abimbola, C., & Taofeek, A. (2015). Credit risk management and financial performance of selected commercial banks in Nigeria. Journal of Economic & Financial Studies, 3(1).
- Oluwafemi, A. S., & Obawale, S. (2010). Risk Management and Financial Performance of Banks in Nigeria. International Journal of Economics and Financial Issues, 14(6), 52-56
- Organization for economic cooperation and development (OECD). (2004). Principles of Corporate Governance.
- Otieno, S., Nyagol, M., & Onditi, A. (2016). Relationship between Credit risk management and financial performance: empirical evidence from microfinance banks in Kenya. Research Journal of Finance and Accounting, 7(6), 115-142.
- Pakhchanyan, S. (2016). Review Operational Risk Management in Financial Institutions: A Literature Review. International Journal of Financial Studies, 4(4), 1-21.
- Pallat, J. (2013). Training programs in communication skills for health care professionals and volunteers. Indian Journal of Palliative Care, 17(1), 512- 531.
- Qudat, M. S., & Ali, B. J.A. (2021). The underlying effect of risk management on banks’ financial performance: an analytical study on commercial and investment banking in Bahrain. Elementary Education Online, 20(5), 404-414.
- Scott-Quinn, B. (Ed.) (2012). Risk Management in credit intermediaries and investment banks. In Commercial and investment banking and the international credit and capital markets (pp. 373-383). London: Palgrave Macmillan.
- Serwadda, I. (2018). Impact of Credit Risk Management Systems on the Financial Performance of Commercial Banks in Uganda. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 66(6), 1627-1635.
- Soyemi, K. A, Ogunleye, O. M. & Ashogbon, F. O. (2014). Risk Management Practices and Financial Performance: Evidence from the Nigerian Deposit Money Banks (DMBS). International Journal of Managerial Studies and Research, 2(5), 31-39.
- Tassew, A. W. & Hailu, A. A. (2019). The effect of risk management on financial performance of commercial banks in Ethiopia. Financial Studies, 23(1), 83, 25-38.
- Tursoy, T. (2018). Risk management process in banking industry (MPRA Paper No. 86427). Near East University.
- Williams, J. W., & Cook, N. M (2016). Econometrics as evidence? Examining the ‘causal’ connection between financial speculation and commodity prices. Social Studies of Science, 46(5), 701-724.
- Zidafamor, E. (2016). Risk management in Nigerian financial institutions - A literature review.