PL EN


2018 | Volume 6 (2018) Issue No. 2: Economic Growth, Innovations and Lobbying | 23-36
Article title

Credit risk management and financial performance among deposit money banks in Nigeria: A case study of Zenith Bank Plc

Content
Title variants
Languages of publication
EN
Abstracts
EN
Risk is an intrinsic attribute that is existent in virtually all fields of human endeavour. The financial environment has turned out to be extremely precarious, unstable and unpredictable by dint of defective risk management practice. In giving out credit, Deposit Money Banks (DMBs) take the risk of the loan or advances (LAD) being fully or partially lost, or of the interest-income accrued not eventually materialising. The review of empirical literature revealed a plethora of approaches to measuring the credit risks facing financial institutions. They showed that the management of risks has a positive impact on profitability. Concentrating on deposit money banks in Nigeria and using Zenith Bank Plc as a case study, the objective of this study is to show in simple terms that risks can be represented by the LAD and the loan loss provision (LLP) made by DMBs, just as performance can be measured by the return on equity (ROE), while total assets (TAS) are included as the control variable. Using data extracted from the financial statements from 2002 to 2017 (16 years), it was established, by means of descriptive statistics and regression analysis, that loan loss provision does not exert a significant impact on profitability.
Contributors
References
  • Abata, M.A. (2014), Asset quality and bank performance: A study of commercial banks in Nigeria, Research Journal of Finance and Accounting, 5(18): 39-44.
  • Adeusi, S.O., Akeke, N.I., Adeusi, O.O., Oladunjoye, O. (2013), Risk management and financial performance of banks in Nigeria, IOSR Journal of Business and Management, 14(6): 52-56.
  • Adrian, T. (2009), Macro risk premium and intermediary balance sheet quantities. Washington: International Monetary Fund.
  • Alam, Z., Masukujjaman, M. (2011), Risk management practices: A critical diagnosis of some selected commercial banks in Bangladesh, Journal of Business and Technology, 6(1): 15-35.
  • Ahmad, I., Oláh, J., Popp, J., Máté, D. (2018), Does business group affiliation matter for superior performance? Evidence from Pakistan, Sustainability 2018, 10(9), 3060; 1-19.
  • Alshatti, A. S. (2015), The effect of credit risk management on financial performance of the Jordanian commercial banks, Investment Management and Financial Innovations, 12(1): 338-345.
  • Bank, E. (2004), Alternative risk transfer: Integrated risk transfer through insurance, re-insurance and the capital markets, New York: John Wiley & Sons.
  • BCBS (2001), Risk management practices and regulatory capital: Cross-sectional comparison, Basel Committee on Banking Supervision, Switzerland: Bank for International Settlement.
  • Baloch, M., Saeed, A., Ahmed, I., Oláh, J., Popp, J., Máté, D. (2018): Role of domestic financial reforms and internationalization: Evidence from the Chinese market, Sustainability 2018, 10(11), 3847.
  • Bloom, M., Milkovich, G. T. (1998), Relationships among risk, incentive pay, and organizational performance, Academy of Management Journal, 41(3): 283-297.
  • Broll, U., Pausch, T., Welzel, P. (2002), Credit risk and credit derivatives in banking, Volkswirtschaftliche Diskussionsreihe, Beitrag Nr.228, Institut fur Volkswirtschaftslehre, Augsburg University.
  • Cantor, R., Frank, P. (1996), Determinants and impact of sovereign credit ratings, Economic Policy Review, 2(1): 37-53.
  • Coskun, Y. (2012), Financial failures and risk management, Sermaye Piyasasi Dergisi, 10(2): 100-109.
  • Dabari, I. J., Saidin, S. Z. (2014), A theoretical framework on the level of risk management implementation in the Nigerian banking sector: The moderating effect of top management support, Procedia-Social and Behavioural Sciences, 164(1): 627-634.
  • Dvorsky, J., Popp, J., Virglerova, Z., Kovács, S., Oláh, J. (2018), Assessing the importance of market risk and its sources in the SME of the Visegrad Group and Serbia. Advances in Decision Sciences, Volume 22(A) 22nd Anniversary Special Issue, December 2018, 1-25.
  • Dugguh, S. I., Diggi, J. (2015), Risk management strategies in financial institutions in Nigeria: The experience of commercial banks, International Journal of Research in Business Studies and Management, 2(6): 66-73.
  • Ennouri, W. (2013), Risk management: New literature review, Polish Journal of Management Studies, 8: 288-297.
  • Gates, S., Nicolas, J.L., Walker, P. L. (2012), Enterprise risk management: a proces for enhanced management and improved performance, Management Accounting Quarterly, 13(3): 28-38.
  • Gizaw, M., Kebede, M., Selvaraj, S. (2015), The impact of credit risk on profitability performance of commercial banks in Ethiopia, African Journal of Business Management, 9(2): 59-66.
  • Hendricks, D., Hirtle, B. (1997), Bank capital requirement for market risk: The internal models approach, Economic Policy Review, 1(1): 1-12.
  • Huber, C., Scheytt, T. (2013), The dispositive of risk management: reconstructing risk management after the financial crisis, Management Accounting Research, 24(2): 88-99.
  • Inyiama, O. I., Ugwuanyi, U. B. (2016), Examination of the relationship between bank age and bank retention policy (A study of Zenith Bank Plc), International Journal of Finance and Accounting, 5(5): 233-239.
  • Kaldor, N. (1939), Speculation and economic stability. The Review of Economic Studies, 7(1): 1-27.
  • Kaliu, F.M., Kaiwa, E. (2015), Effects of credit risk management procedures on financial performance among microfinance institutions (MFIs) in Kenya: A case study of MFIs in Nairobi County, International Journal of Humanities Social Sciences and Education, 2(3): 81-103.
  • Kambi, R., Ali, A.I. (2016), Effects of financial risk management practices on financial performance of listed banks at the Nairobi securities exchange in Kenya, The International Journal of Business & Management, 4(4): 19.
  • Kargi, H. (2011), The impact of credit risk management practices on the profitability of Nigerian banks, Ahmadu Bello University, Zaria, Nigeria.
  • Keynes, J.M. (1936), The general theory of employment interest and money, London: Palgrave Macmillan.
  • Kiochos, P. (1997), Principles of risk management and insurance (8th edition), New York: Pearson Education.
  • Kithinji, A.M. (2010), Credit risk management and profitability of commercial banks in Kenya, University of Nairobi, Kenya repository.
  • Kolapo, F.T., Ayeni, R. K, Oke, M. O. (2012), Credit risk and commercial banks’ performance in Nigeria: A panel model approach, Australian Journal of Business and Management Research, 2(2): 31-38.
  • Kwabena, A.B.M. (2014), Credit risk management in financial institutions: A case study of Ghana Commercial Bank Limited, Research Journal of Finance and Accounting, 5(23): 67-85.
  • Lubatkin, M., Rogers, R. C. (1989), Diversification, systematic risk, and shareholder return: A capital market extension of Rumelt’s 1974 study, Academy of Management Journal, 32(2): 454-465.
  • Markowitz, H.M. (1959), Portfolio selection: Efficient diversification of investment, Cowles Foundation Monograph No 16, New York: Wiley & Sons.
  • Marschak, J. (1938), Money and the theory of assets, Econometrica, Journal of the Econometric Society, 311-325.
  • Murage, C.W., Muiru, M. W. (2016), The effect of credit risk on corporate liquidity of deposit taking microfinance institutions, International Journal of Business and Social Science, 7(4): 181-189.
  • Muteti, S.R. (2014), Relationship between financial risk management and financial performance of commercial banks in Kenya, An unpublished MBA project, School of Business, University of Nairobi, Kenya.
  • Nadeem, M.E., Khalil, B. (2014), A review of risk management theory in commercial and Islamic banks, International Journal of Management & Organisational Studies, 3(4): 34-38.
  • Nicola, C., Benjamin, H., Lindsay, M. (2012), The evolution of banks and financial intermediation, FRBNY Economic Policy Review, 5(5): 562-579.
  • Njogo, B.O. (2012), Risk management in the Nigerian banking industry, Kuwait Chapter of Arabian Journal of Business and Management Review, 1(10).
  • Okoye, I. (2010), Risk management in two Nigerian banks, Master’s Thesis, University of Nigeria, Enugu, Nigeria.
  • Omasete, C.A. (2012), The effect of risk management on financial performance of insurance companies in Kenya, University of Nairobi, Kenya.
  • Padilla, J., Pagano, M. (2000), Sharing default information as a borrower discipline device, European Economic Review, 44(1): 1951-80.
  • Prakash P., Poudel, S. (2012), The impact of credit risk management on financial performance in Nepal, International Journal of Arts and Commerce, 1(5): 9-15.
  • Pyle, H.D. (1997), Bank risk management: Theory, Working Paper RPF-272, Haas School of Business, University of California, Berkeley Research Program in Finance, Conference on risk management and deregulation in banking, Jerusalem, 17-19 May 1997.
  • Rejda, G.E. (2008), Principles of risk management and insurance (10th edition), Upper Sadle River: Prentice Hall
  • Sanusi, S.L.A. (2012), Banking reform and its impact on the Nigerian economy, CBN Journal of Applied Statistics, 2(2): 115-122.
  • Smith Jr, C.W., Watts, R. L. (1992), The investment opportunity set and corporate financing, dividend, and compensation policies, Journal of financial Economics, 32(3): 263-292.
  • Soteriou, A., Zenios, S.A. (1999), Operations, quality, and profitability in the provision of banking services, Management Science, 45(9): 1221-1238.
  • Soyemi, K.A., Ogunleye, J. O., Ashogbon, F.O. (2014), Risk management practices and financial performance: Evidence from the Nigerian deposit money banks (DMBs), The Business and Management Review, 4(4): 345-354.
  • Stulz, R.M. (1996), Rethinking risk management, Journal of Applied Corporate Finance, 9(3): 8-24.
  • Stulz, R. M. (2003), Risk management and derivatives, Mason, Ohio: South Western.
  • Tobin, J. (1958), Liquidity preference as behaviour towards risk, The Review of Economic Studies, 25(2): 65-86.
  • Williamson, O. E. (1998), The institutions of governance, The American Economic Review, 88(2): 75-79.
  • Wu, D., Olson, D.L. (2010), Enterprise risk management: Coping with model risk in a large bank, Journal of the Operational Research Society, 61(2): 179-190.
  • Tarantino, A., Cernauskas, D. (2009), Risk management in finance, New York: John Wiley & Sons.
  • Zenith Bank Plc, Annual reports & financial statements for various years, https://www.zenithbank.com.
  • Zupanovic, I. (2013), Sustainable risk management in the banking sector, Journal of Central Banking and Practice, 3(1): 81-100.
Document Type
Publication order reference
Identifiers
YADDA identifier
bwmeta1.element.desklight-da3c84f1-70f2-403c-9c6b-1ad257f39109
JavaScript is turned off in your web browser. Turn it on to take full advantage of this site, then refresh the page.