Risk Management Strategies and Financial Performance in Deposit Money Banks Listed on the Nigerian Exchange Group
Keywords:
Risk management strategies, Financial performance, Deposit money banks, Nigeria exchange group.
Abstract
This study investigated the effect of risk management strategies on financial performance of listed deposit money banks in Nigeria. Where liquidity risk, interest risk and foreign exchange risk used as proxies for independent variables while returns on assets used as proxy for dependent variable and firm size was control variable. Risk management strategies are very important for the prospect of any firm to improve the firm financial performance. This study employed ex-post facto research design and secondary data was collected from the financial reports of 11 listed deposit money banks for a period spanning 2011 to 2020. The data collected was analyzed through the means of Hausman test that was conducted to determine the best model between random effect and fixed effect, the result of Hausman test shows that random effect is the most appropriate model to determine whether there is statistical effect among the variables. The finding shows that rise in liquidity risk of the firm will bring about decrease in the firm financial performance and decline in interest rate risk will lead to rise in financial performance, interest risk has negative effect with returns on assets and that increase in foreign exchange risk leads to fall in financial performance of the banks. The study recommended that deposit money banks should strengthen their risk management strategies by employing capable teams and new strategies that follow the rules put in place by the Central Bank of Nigeria.
References
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Babalola A. & Abiola, R. (2013). Financial ratios analysis of firms. Journal of Management Sciences, 1(4), 132-137.
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Etale, L. M., & Ujuju, L. E. (2018). Risk management, risk concentration and the performance of deposit money banks in Nigeria. International Journal of Business and Management Review, 6(10), 56-68.
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Okere, W., Isiaka, M., & Ogunlowore, A. (2018). Risk management and financial performance of deposit money banks in Nigeria. European Journal of Business, Economics and Accountancy, 6(2), 30-43.
Oladipupo, A.O. & Anotaniyohuwo, F.O. (2011). Impact of exchange rate on balance of payment in Nigeria. Africa Research Review: An International Multidisciplinary Journal, Ethiopia, 5(4), 73-88.
Olalere, O, E., & Wan, A. B. (2016). Risk management and financial performance of commercial banks in Nigeria: A Literature Review Revisited. Journal of Economics and finance, 7(2), 14-19.
Olowokure, O., Tanko, M. & Nyor, T. (2015). Firm structural characteristics and financial reporting quality. International Business Research, 9(1), 106-122.
Olusanmi, 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 and Practice. https://doi.org/10.515171/2015.23999999854
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Rodriguez-Morenno, M., & Pena, J.I. (2013). Systematic risk measures: The simpler the better. Journal of Banking and Finance, 37(6), 1817-1831.
Rosse, M. (2016). The capital assets pricing model: A critical literature review
Ruziga, A. (2013). The impact of credit and liquidity risk on bank financial performance: The case study of Indonesian conventional bank with total asset above 10 trillion rupiah. International Journal of Economics, Management and Accounting, 12(2),
Shibiru T. & Mebratu N. (2017). The impact of credit risk management on the performance of private commercial banks in Ethiopia 8(15),
Teimet, R., Lishenga, J., Iraya, M. & Duncan, E. (2019). The effect of bank size on profitability of commercial banks in Kenya, International Journal of economics, Commerce & Management, 7 (12), 202-216
Tian, Y. (2009). Market liquidity risk and market risk measurement. M. Sc thesis, group risk analytics, the royal bank of Scotland, Faculty of Electrical Engineering, Mathematics and computer Science. Delft University of Technology, Amsterdam the Netherlands.
Tseganesh (2012). Conducted the study on the determinants of banks liquidity and impact on financial performance
Vinals, J., Pazarbasioglu, C. Surti, J., Narain A., Erbenova M., & Chow J., (2013). Creating a safer financial system: Will the volcker, vickers, and liikanen structural measures help. IMF Staff Discussion, 13(4).
Worku (2006). The impact of liquidity risk on the performance of commercial banks in Ethiopia
Yanting, Z, & Liyin (2018). Research on risk management of petroleum operations. Energy Procedia, 5, 2330-2334.
Zephaniah, A. M. (2013). The relationship between liquidity risk and financial performance of commercial banks in Kenya.
Agubata, S. N. & Odubuasi, A. C. (2018). Effect of exchange rate fluctuation on the financial performance of Nigerian manufacturing firms: Evidence from food beverage and tobacco sector. International Journal of Commerce and Management Research, 4(4), 56-61.
Ali, S. A. (2015). The effect of the liquidity management on profitability in the Jordanian Commercial banks. International Journal of Business and Management, 10(1), 62-72.
Babalola A. & Abiola, R. (2013). Financial ratios analysis of firms. Journal of Management Sciences, 1(4), 132-137.
Chukwunulu, Ezebasili & Igbodika (2019). Studied the effect of risk management on Bank financial performance in Nigeria.
Deniz, P. & Hüseyin (2016). Foreign exchange risk and financial performance: The case study of Turkey. 4(2), 1-15.
Drehmann, M. & Nikolaou, K. (2009). Funding liquidity risk definition and measurement. Working paper series. European Central Bank, 1224. www.ecb.europa.eu
Ejoh, N. O., Okpa, I. B. & Egbe. A. A. (2014). The impact of credit and liquidity risk management on the profitability of deposit money banks in Nigeria. International Journal of Economics, Commerce and Management, 2(9), 1-15.
Ekinci, A. (2016). The effect of credit and market risk on bank performance: evidence from Turkey. International Journal of Economics and Financial Issues, 6(2), 427-434.
Endaweke, M. (2015). Risk management and its impact on the financial performance of commercial banks in Ethiopia, M.Sc Thesis
Enekwe, C. I, Ordu. M. M. & Nwoha, C. (2013). Effect of exchange rate fluctuation on manufacturing sector in Nigeria. European Journal of Business and Management 5(22), 67-73.
Etale, L. M., & Ujuju, L. E. (2018). Risk management, risk concentration and the performance of deposit money banks in Nigeria. International Journal of Business and Management Review, 6(10), 56-68.
Gathigia, J. M. (2016). Effect of financial risk on financial performance of commercial banks in Kenya. Unpublished Ph.D Dissertation, Jomo Kenyatta University of Agriculture and Technology
Gilchris, M. (2013). Influence of bank specific and macroeconomic factors on the profitability of 25 commercial banks in Pakistan during the period 2007-2011. American Journal of Business and finance, 3(2), 1-28.
Godfrey, M. (2015). Liquidity and Bank performance. International Business and Economics Research Journal, 14(3), 453-462.
Gusti, A. P. (2014). The effect of capital and liquidity risk to profitability on conventional rural bank in Indonesia. Contemporary Business, Economics and Law, 5(1), 44-50
Hosna, A., Manzura, B., & Juanjuan, S. (2009). Credit risk management and profitability in commercial banks in Sweden. Rappot nr: master Degree Project 2009: 36
Hull, J. C. (2015). Risk management and financial institution. New Jersey: John Wiley & Sons
Inegbedion, H. E. & Obadiaru, E. D. (2018). Modeling brand loyalty in the Nigerian telecommunication industry. Journal of Strategic Marketing. https://doi.org/10.1080/0965254X.2018.1462842
IRM. (2012). Risk culture: Guidance from the institute of risk management, institute of risk management. Retrieved 02 June 13 from http://www.theirm.org/RiskCulture.html
Irungu, P. M. (2013). The effect of interest rate spread on financial performance of banks in Kenya. An M.Sc Research Project Submitted to the University of Nairobi
Ismal, R. (2010). Managing banking liquidity risk in the current economic conditions: A conceptual liquidity risk on the performance of commercial banks. International Research of Applied and Basic Science, 4(6), 1624-1631.
Kargi, (2011). The impact of credit risk on the profitability of Nigerian banks
Kithinji, M. A. (2016). Credit risk management and profitability of commercial banks in Kenya. Published Thesis of School of Business, University of Nairobi
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
Lintner, J. (1965). The valuation of risk asset on the selection of risky investments in stock porfolio and capital budgets. Review of Economics and Statistics, 47, 13-37.
Muhammad, A. (2014). What influence banks lending in Sub-Saharan Africa. Journal of Emerging Market Finance, 13(1), 1-42.
Muhindi, A. & Ngaba, D. (2018). Effects of firm size on the financial performance of commercial banks. Journal of Economics and Finance, 3(1), 175-190.
Namasake, W. K. (2016). The effect of market risk on the financial performance of commercial banks in Kenya. Unpublished M.Sc Projects Submitted to School of Business, University of Nairobi.
Nigeria LNG (2012). Facts and figures on nigeria lng port harcourt: corporate communication and public affairs department of Nigeria LNG. Facts and Figures on Nigeria LNG
Noor, J. A. M., & Abdalla, A. I. (2014). The impact of financial risk on the firm’s performance. European Journal of Business and Management, 6(5), 97-101.
Ogunbiyi, S. S & Ihejirika, P. O (2016). Interest rate and deposit money banks profitability: the Nigeria experience. Ariabian Journal of Business and Management Review (Oman Chapter), 3(11), 133-148.
Okere, W., Isiaka, M., & Ogunlowore, A. (2018). Risk management and financial performance of deposit money banks in Nigeria. European Journal of Business, Economics and Accountancy, 6(2), 30-43.
Oladipupo, A.O. & Anotaniyohuwo, F.O. (2011). Impact of exchange rate on balance of payment in Nigeria. Africa Research Review: An International Multidisciplinary Journal, Ethiopia, 5(4), 73-88.
Olalere, O, E., & Wan, A. B. (2016). Risk management and financial performance of commercial banks in Nigeria: A Literature Review Revisited. Journal of Economics and finance, 7(2), 14-19.
Olowokure, O., Tanko, M. & Nyor, T. (2015). Firm structural characteristics and financial reporting quality. International Business Research, 9(1), 106-122.
Olusanmi, 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 and Practice. https://doi.org/10.515171/2015.23999999854
Oluwafemi, S., Niyi, I., Obawale, S., & Olawale (2013). Risk management and financial performance of banks in Nigeria. IOSR Journal of Business and Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN: 2319-7668. 14(6), 52-56 www.iosrjornals.org
Rodriguez-Morenno, M., & Pena, J.I. (2013). Systematic risk measures: The simpler the better. Journal of Banking and Finance, 37(6), 1817-1831.
Rosse, M. (2016). The capital assets pricing model: A critical literature review
Ruziga, A. (2013). The impact of credit and liquidity risk on bank financial performance: The case study of Indonesian conventional bank with total asset above 10 trillion rupiah. International Journal of Economics, Management and Accounting, 12(2),
Shibiru T. & Mebratu N. (2017). The impact of credit risk management on the performance of private commercial banks in Ethiopia 8(15),
Teimet, R., Lishenga, J., Iraya, M. & Duncan, E. (2019). The effect of bank size on profitability of commercial banks in Kenya, International Journal of economics, Commerce & Management, 7 (12), 202-216
Tian, Y. (2009). Market liquidity risk and market risk measurement. M. Sc thesis, group risk analytics, the royal bank of Scotland, Faculty of Electrical Engineering, Mathematics and computer Science. Delft University of Technology, Amsterdam the Netherlands.
Tseganesh (2012). Conducted the study on the determinants of banks liquidity and impact on financial performance
Vinals, J., Pazarbasioglu, C. Surti, J., Narain A., Erbenova M., & Chow J., (2013). Creating a safer financial system: Will the volcker, vickers, and liikanen structural measures help. IMF Staff Discussion, 13(4).
Worku (2006). The impact of liquidity risk on the performance of commercial banks in Ethiopia
Yanting, Z, & Liyin (2018). Research on risk management of petroleum operations. Energy Procedia, 5, 2330-2334.
Zephaniah, A. M. (2013). The relationship between liquidity risk and financial performance of commercial banks in Kenya.
Published
2023-07-21
Section
Articles
