1.1 BACKGROUND OF THE STUDY
Risk is inherent in any walk of life in general and in financial sectors in particular. Until recently, due to regulated environment, bank could not afford to take risk. Banks are exposed to same competition and hence are compelled to encounter various types of financial and non financial risk. Risk and uncertainties form on integral part of banking which by nature entails taking risks. There are three main categories of risk, credit risk, market Risk and operational risk. Author has discussed in detail, main features of these risk as well as some other categories of risk such as Regulatory risk and Environmental risk. Various tools and techniques to manage credit risk, market risk and operational risk and its various component, are also discussed in detail, another has also mentioned relevant points of Basel’s New capital Accord and role of capital adequacy, risk aggregation and capital Allocation and risk. Based supervision (RBS), in managing risk in banking sector.
As people and nations begin to civilize and develop business started springing up from different corners of the earth creating enough wealth for nations and individuals through the acquisition of a specific medium of exchange known as money which continues to grow if invested, reinvested and safe quarded. As individuals started growing in this financial status there evolved a risk of keeping too much money and valuables in the house and in the emergence of this, banks started coming into existence; firstly, from gold Smith’s safe houses to bank and later known as financial institution whose activities can cut across nations and continents all in the bid to maximize profit through the creation of services and giving of confidence to their customers who bank with them.
A bank literally means a mould like help and to bank simply means to keep, keep or give but in the case of this work, we are talking of an establishment that is charged with the safe keeping of monies and valuables, the monies and valuables being kept and paid on the customer’s order, primarily. Banks could be generally described as institution caring out the business of receiving money and collecting draft or cheques from customers subject to the obligations of honoring cheques drawn from time to time by the customers to the extent of the amount available in their accounts. The definitions could be reinforced will the decisions of a court of law on a decided case known as united dominions.
Trust limited Kirkwood (1996) Au E.R. 908 where it was decided that banking is characterized:
From the above definition it can be seen that the principal or substantial part of the business consist of receiving money for the credit of the customers which the depositor must with draw on demand by present day financial intermediation is far beyond all this, but for the purposes of this work references in the bank’s functions would be drawn mainly on the risk related activities.
Banks therefore, generally perform a key function of reducing risk of financial transactions for their customers who place funds with them and borrowers who are able to use these funds. To survive, a bank must develop strategies that is effective enough for the bank to cope with the risks inherent in financial intermediation, including its physical and moral nature prevalent in the banking sector and the Nigerian economic environment as a whole.
The ability of the banking system to perform it’s tasks efficiently and in harmony with the needs of the public and economic goals set by the monetary authorities depends to a large extent on efficient and effective management of risk inherent in the sector. By risk here I mean the possible outcome of uncertainties, which will result, to losses if allowed to occur.
The aim of this research is to identify measure and recommended control tools for the handling of risk that exit in the operations of Nigeria banks. To achieve the above stated goal, this research would attempt to examine the role played by risk management in construction of strategies for the improvement of bank performance (probability).
The relationship between application of risk management tools in general and failure of banks will be investigated along side with necessary corrective measure to be taken. This study will also identify the major sources from which risk and uncertainties may arise in banks and confirm whether
1.3 OBJECTIVE OF THE STUDY
The general objective of this study is low examine the nature and management of risk on Nigeria banking industry.
Hi: Effective risk management will affect the profitability of the bank positively.
The researcher considers the study worthy of investigation because to avoid failure; and guaranteed growth given the current wave of deregulation strict completion, “Banks” who are the beneficiaries must be fully operated preparation entails proper analysis and efficient discharge of their duties.
Banks due to dynamism of the Nigeria business environment acts in motion. The current African exchange market (AFEM) make risk management necessary for all banks.
Risk management is a new philosophy in Nigeria banking arena and because of the growing nature of risks. These types of study become timely in order to create awareness in the bank’s management. The study will definitely stimulate research interest and management attention in the area of risk analysis and management.
The institutionalization of the deposit insurance scheme by decree No. 22 of 1988 which established (NDIC). The Nigerian deposit insurance corporation by the federal government; and subsequent vigour or impetus added by the requirement of the prudential guidelines, emphasizes further the essence of risk analysis and management in Nigerian banks
The basic tools of risk management and their application will be covered by the study as they obtain in Nigeria banking industry for a considerable period.
A lot of problems were encountered in the course of this research work but however, a few major ones are as follows:
more information and data for preparation of this project work were prevented.
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