IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 5 NO. 1 2019

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Risk Management and the Performance of Commercial Banks in Nigeria (1994-2016)

Jessie I. Chukwunulu, Vincent N. Ezeabasili & MaryAnn N. Igbodika

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Abstract

This study examined the effect of risk management on bank performance in Nigeria. Two bank performance indicators (return on assets and return on equity) were used as the dependent variables while unsystematic risk management measures including credit risk, liquidity risk, operational risk and capital adequacy risk are the independent variables. The data for the study covering 23 years from 1994 to 2016 were obtained from NDIC annual reports. The SPSS was used to run OLS regression analysis. Results of VIF and Durbin Watson statistics for multicolinearity and autocorrelation respectively confirmed the suitability of the models and reliability of the results. Coefficient of determination showed that risk management variables explained 41% and 23% of changes in return on equity and return on assets respectively. Furthermore, credit risk has a significant negative effect on return on equity and insignificant negative effect on return on assets; Liquidity Management has no significant effect on bank performance; Operational risk has no significant effect on bank performance in Nigeria; while capital adequacy has a significant positive effect on return on equity but a negative insignificant effect on return on assets. The study concluded that there is a poor risk management practice in Nigerian banks. Among others, it recommended that the CBN and other regulators should endeavour to enforce risk identification, assessment, measurement and control mechanisms in line with global best practices in other to avoid financial crisis and also improve on commercial banks’ performance.

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