Effect of Risk on Financial Performance of Money Deposit Banks in Nigeria

Abstract

This study analyzed effect of risk and performance of deposit money banks in Nigeria. The specific objectives were to examine the effect of liquidity risk, operational risk, interest rate risk exchange rate risk on the performance of deposit money banks in Nigeria. Panel Least Squared (PLS) method of data analysis was used. Secondary sources of data were employed; the interested variables were sourced from the annual report of the quoted deposit money banks. The variables were return on assets as the dependent variables while liquidity risk, operational risk, interest risk and exchange risk. The study employs descriptive statistics, correlation and regression analysis in the analysis. From the analysis result the study found that. Liquidity risk has no significant effect on the performance of deposit money banks in Nigeria. (T-test 0.278158, p=0.7816). Operational risk has no significant effect on the performance of deposit money banks in Nigeria. (T-test -1.162347, p=0.2483) Interest rate risk has significant effect on the performance of deposit money banks in Nigeria. (T-test 2.245644, p=0.0065) The researcher recommends that it was recommended that banks in Nigeria should increase concentration on strategies to increase customer deposit and the banks should use scientific methods in detecting the strengths and weaknesses points of liquidity risk. The bank management should also pay less attention to operational risk though not completely as the result revealed that operational risk has a significant negative effect on the performance of banks. Bank should venture into business with higher interest rate but should establish a mechanism to monitor market movement of interest rate, as any rise in interest rates causes banks problems.

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