Home / ACCOUNTING PROJECT TOPIC AND MATERIALS / Risk Management In Nigerian Banks: A Case Study Of First Bank Calabar

Risk Management In Nigerian Banks: A Case Study Of First Bank Calabar

RISK MANAGEMENT IN NIGERIAN BANKS: A CASE STUDY OF FIRST BANK CALABAR

CHAPTER TWO

LITERATURE REVIEW

2.1. CONCEPTUAL REVIEW

For bank to be standard it must undertake investments it shows that the decision taken on portfolios management, specify accurately a unique sequence cash flow cannot be forecast accurately as it subjected to the occurrence of future events.

This determine the probability element in decision making, therefore risk arises in investment evaluation because occurrence of the possible event with certainty and consequently can not make any correct prediction about the cash flow system, much has been said in literature as performance of union bank. I will first attempt to bring the subject matters (Risk management in Nigeria banking institution).

Pandey (1981) defines risk as the potential hazard of the variability that is likely to occur in the feature returns of a project, he sees the project as being little risk free or highly risk. An investment in treasury bills for example has little or no risk associated with the, it is for this, has the very interest payable treasury bills is very or comparatively low. The interest paid on the investment in sick or share ranks higher than that of treasury bills because of the level of uncertainty of variability of feature returns.

Measurement of different method that is commonly used in the level of uncertainty of variability of feature returns standard deviation and co-efficient of variations, while conventional techniques used to measure the risk of the pay back period risk adjusted, discount rate, certainty equivalent, statistical method like probability assignment standard deviation and co-efficient of variation are also applicable in the management of risk.

Nwankwo, in the year 1999, he wrote a book on bank management principle and practices which appreciate the existence of the risk and need’s to be manage effectively. He defines risk as the possibility of loss injury, occur and in his estimation, risk is the main issues in business of banking, he classified risk into two categories. They include:

Fraud Risk

Market Risk

1 FRAUD RISK:

Fraud is deliberately deception or checking or unlawful gain by stealing, deceitful way, defrauding and embezzlement in spite of all these issuances schemes which is recently set up the federal government (NDIS) Nigeria Deposit insurance schemes, this form of risk is responsible for the case of bank failure so far witnessed Nigeria Banking system today.

2. MARKET RISK:

Market risk is defined as transaction risk, which occur in form of an interest rate risk, earning risk, liquidity and foreign exchange risk.

Nwankwo went further to discuss risk management of risks.

Objectives of Risk management

Implementation as assignment of responsibility for managing the risk.

Types of risk

1 Objectives of risk management is to take consideration of the observable risk under control which depend on the types of risk that is being considered for effective implementation which include three strategies.

a. Risk preventation and loss reduction

b. Risk transfer

c Risk retention

a. Risk Preventation And Loss Reduction:

This is measure adopted to prevent the occurrence of risk and minimize the loss, where by the risk has already occurred.

b. Risk Transfer:- This is the type of transfer to another financial institution like the insurance companies.

c. Risk Retention:- This is the type of risk bank will usually absorb or change to their profit and loss account. Having mapped out strategies the next stage would be the implementation and review.

To implement all, the department must work in harmony according to agreed standard. Uncoordinated approach can only lead to crises than earlier anticipated. All measured taken must be live with the management policies, which necessary adjustment, has been made to relate such polices to real life situation.

It is also necessary to assign responsibility for monitoring co-ordination, general appraisal and review.

While commenting on major financial risk Adekanye (1992) the element of banking recognized the need for banks to seek a harmony between risk rate of returns and liquidity, therefore in managing assets and liabilities banks must bear, sustained warning growth and control of exposure to financial risk, he identified these major financial risk as follows:

MARKET RISK

1 Liquidity Risk

2 Credit Risk

According to Adekanye, he affect the influence of market force upon the availability of funds, this create liquidity risk upon the movement of foreign exchange risks. Market processes are related to economic system of financial and political developments. To avert a crisis situation in the sources and uses of fund.

Hence the control and management of the market risk can be achieved by the following:-

a. Operation of active money market. Through the naira, money is not yet matured

b. Diversifying sources of funds, types of instrument and well articulated matching principles.

Furthermore, the probability is always there that credit which is extended to this form of risk, he recommended the divers to the nature of debtors and their need or location. Added to this is the maintenance of the standard of credit management. The needs for provision or bad debts are important in the acceptance of marketable assets securities.

Seminaries, customers need assurance that the bank is always in position to meet their cash document therefore the bank must to maintain the customer confidence that measure they must keep sufficient stock for liquid asset and as statutory liquidity ration must be observed in bank.

Analyzing risk, Mayo BPP 1990 Financial Management study text differentiate risk from uncertainty, accordingly risk occurs when it is unknown, the future outcome, when the various possible future outcome maybe expected with some decree of confidence of the knowledge of past or existing events. In the words probabilities of alternatives outcome can be estimated.

1 Business Risk

2 Financial Risk

Because risk is seen as that associated with a project undertaken, financial risk is considered as that which helps the company in the areas that may not be able to make sufficient profit after paying debts interest, to finance a satisfactory divided method or risk analyzing like using profitability analyzing for the cash low which is also considered.

Management of risk has assumed such as important dimension in banking operations, which could be considered under two main approaches

About admin

Leave a Reply

Your email address will not be published. Required fields are marked *

*

x

Check Also

Purple Hibiscus

Family And Society: A Case Study Of Things Fall Apart And Purple Hibiscus In Comparative Perspective 

FAMILY AND SOCIETY: A CASE STUDY OF THINGS FALL APART AND PURPLE ...