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Risk Taking Behavior and Profitability of Quoted Commercial Banks in Nigeria

Wike Chituru

Abstract

This study ascertained the relationship between risk taking behavior and financial performance of quoted commercial banks in Nigeria. The purpose was to examine the extent that risk taking relates to financial performance of commercial banks. Cross sectional data was sourced from financial statements of the quoted commercial banks from 2019 to 2024. The study modeled return on investment as the function of Liquidity Risk, Credit Risk, Exchange Rate Risk, Interest rate risk and cash flow risk as volatility from cash flow from operation. Panel data ordinary least square methods were used. The study found that the independent variables can explain 21.5 percent variation on the financial performance of commercial banks in Nigeria; this implies that 79.5 percent can be explained by factors not captured in the model. The f-s statistics and the probability indicate that the model is significant and fit for analysis while the Durbin Watson statistics indicates the absence of serial autocorrelation among the variables within the time periods. The beta coefficient of the variables indicates that the independent variables have positive effect on the financial performance of the quoted commercial banks except X5 which is cash flow risk. The study concludes no significant relationship between risk taking behavior and financial performance of quoted commercial banks in Nigeria. The study recommends that banks should focus more on credit risk management, especially on the control and monitoring of nonperforming loans. Also, managers should focus more on modern credit risk management techniques. That bank is encouraged to cut-down their lending rates in other to decrease credit risk and boost profitability. Regarding operational risk, banks should reduce leverage and have their portfolio more concentrated on liquid investment income so as to boost profitability and bank managers need to put more efforts to control the non-performing loan by critically evaluating borrowers’ ability

Keywords

Risk Taking BehaviorProfitabilityCommercial BanksNigeria

References

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