RISK MANAGEMENT AND DECISION MAKING: EVIDENCE FROM NIGERIAN BANKS

Lucky Salubi Inaya, Vincent Ekokotu Agunuwa,

Abstract


This study sought to investigate the extent to which risk management affects the loans and advances of Nigerian Banks. This study adopted a descriptive study design. The population of the study comprised of the totality of Deposit Money Banks (DMBs) in Nigeria as at December 31, 2016. However, a sample of six (6) banks selected by means of judgmental sampling technique was used in the study. In order to achieve the objectives of the study, secondary data on liquidity ratio, interest rates, foreign exchange rates and loans and advances were obtained from the Central Bank of Nigeria Statistical Bulletin during the period 2000-2016. These parameters were used to measure credit and market risks that have the tendency to influence loans and advances of Deposit Money Banks (DMBs) in Nigeria when properly managed. The model specification was based on decision making(proxy by loans and advances of banks) as a function of credit risk (liquidity ratios) and market risks (interest and foreign exchange rates). Regression analysis method was employed in analyzing the data via SPSS, version 20.0. The findings revealed that liquidity risk, interest rate risk and foreign exchange risk significantly affects the loans and advances of Nigerian banks. Thus, the study concluded that risk management significantly and positively influences the decision making of banks in Nigeria. Based on the findings, we recommend among others that Nigerian banks should employ robust liquidity risk management practices that ensure sufficient liquidity including a cushion of unencumbered high quality liquid assets to withstand a range of stress events as well as those involving the loss or impairment of both secured and unsecured funding sources. In addition, for Nigerian banks to improve on their decision making, they should focus more on their credit risk as well as market risks such as interest and foreign exchange rates.

Keywords


Risk Management; Decision Making; Market Risk; Credit Risk; Banking Industry

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International Journal of Management Science Research ISSN ISSN 2536 – 605X(Print)

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