Financial Risk Management and Bank Performance: An Evidence of Selected Nigerian Deposit Money Banks (Published)
The issue of financial risk management has been a burning issue throughout the banking industry in Nigeria especially in the wake of global financial crisis and the ensuing regulatory changes. Nigerian deposit money banks (NDMBs) face a number of financial risks which can impact their capacity to earn sustainable returns and financial sustainability to a large extent. It is thus necessary to understand the impact of these risks on financial performance in a bid to supervise banks and make managerial decisions in Nigeria. The paper explores the effect of financial risk on financial performance in NDMBs on an expo facto research design. The data were collected using secondary sources in the years between 2010 and 2022 and on selected NDMBs. The study utilised stratified sampling to identify the diversity of the NDMBs as 20 banks were purposively identified to participate in the study. The year 2010 was taken as the base year due to the fact that it was the year when the world came out of a global economic crisis and new risk and governance policies were implemented by the bank management and regulators. The information regarding the financial and bank performance was obtained through the Central Bank of Nigeria (CBN) reports and Annual Financial reports of the chosen banks. The data obtained was analysed with the help of proper descriptive and panel least square regression analysis methods. The results exhibited credit risks (CRR), cost-income ratio (CIR), total regulatory capital (TRC), and bank size (SIZE) as factors influencing financial performance through both return on assets (ROA) and return on equity (ROE). CRR showed a negative coefficient value of 0.0002 and probability of 0.0419, LQR has a negative coefficient value of 0.0594 which is statistically significant (p-value = 0.0498), CIR (coefficient = -0.0281 and probability = 0.0106), TRC with a positive coefficient value of 0.0358 on the level of ROA which is statistically significant (p-value = 0.0457), and SIZE showed a coefficient value of 0.0088 which is statistically significant (p-value = 0.0210). While CRR negatively and significantly influenced ROE with a negative coefficient value of 0.0039 and probability of 0.0254, LQR had a positive coefficient value of 0.0867 on ROE which is statistically significant (p-value = 0.0317), CIR (coefficient = 0.0785 and probability = 0.0472), SIZE is significantly influenced the returns with coefficient value of 0.097 and probability of 0.0016. The study concludes that financial risk management significantly influences financial performance of NDMBs. The study recommends that banks must observe strict compliance with regulatory positions on lending and ensure that their credit risk management is tailored towards generating sufficient earnings that will improve financial performance. Also, bank management must endeavor to have a robust risk management strategy that incorporates global best practices so as to improve their financial performance and be better prepared for economic challenges.
Keywords: Financial Performance, Nigerian deposit money banks, financial risk management