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RISK
MANAGEMENT IN NIGERIAN BANKS: A CASE STUDY OF UNION BANK UYO
INTRODUCTION
For bank to
be standard it must undertake investments it shows that the decision taken on
portfolios management, specify accurately a unique sequence cash flow cannot be
forecast accurately as it subjected to the occurrence of future events. This
determine the probability element in decision making, therefore risk arises in
investment evaluation because occurrence of the possible event with certainty
and consequently can not make any correct prediction about the cash flow
system, much has been said in literature as performance of union bank. I will
first attempt to bring the subject matters (Risk management in Nigeria banking
institution). Pandey (1981) defines risk as the potential hazard of the
variability that is likely to occur in the feature returns of a project, he sees
the project as being little risk free or highly risk. An investment in treasury
bills for example has little or no risk associated with the, it is for this,
has the very interest payable treasury bills is very or comparatively low. The
interest paid on the investment in sick or share ranks higher than that of
treasury bills because of the level of uncertainty of variability of feature
returns. Measurement of different method that is commonly used in the level of
uncertainty of variability of feature returns standard deviation and
co-efficient of variations, while conventional techniques used to measure the
risk of the pay back period risk adjusted, discount rate, certainty equivalent,
statistical method like probability assignment standard deviation and co-efficient
of variation are also applicable in the management of risk. Nwankwo, in the
year 1999, he wrote a book on bank management principle and practices which
appreciate the existence of the risk and need’s to be manage effectively. He
defines risk as the possibility of loss injury, occur and in his estimation,
risk is the main issues in business of banking, he classified risk into two
categories. They include:
1. FRAUD RISK: Fraud is deliberately deception
or checking or unlawful gain by stealing, deceitful way, defrauding and
embezzlement in spite of all these issuances schemes which is recently set up
the federal government (NDIS) Nigeria Deposit insurance schemes, this form of
risk is responsible for the case of bank failure so far witnessed Nigeria
Banking system today.
2. MARKET RISK: Market risk is defined as
transaction risk, which occur in form of an interest rate risk, earning risk,
liquidity and foreign exchange risk.
Nwankwo went
further to discuss risk management of risks.
Objectives
of Risk management
Implementation
as assignment of responsibility for managing the risk.
Types of
risk
1.
Objectives of risk management is to take consideration of the observable risk
under control which depend on the types of risk that is being considered for
effective implementation which include three strategies. a. Risk prevention and
loss reduction b. Risk transfer c.
Risk retention
a. Risk Preventation And Loss Reduction:
This is
measure adopted to prevent the occurrence of risk and minimize the loss, where
by the risk has already occurred.
b. Risk Transfer:- This is the type of transfer
to another financial institution like the insurance companies.
c. Risk Retention:- This is the type of risk
bank will usually absorb or change to their profit and loss account. Having
mapped out strategies the next stage would be the implementation and review. To
implement all, the department must work in harmony according to agreed
standard. Uncoordinated approach can only lead to crises than earlier
anticipated. All measured taken must be live with the management policies,
which necessary adjustment, has been made to relate such polices to real life
situation. It is also necessary to assign responsibility for monitoring
co-ordination, general appraisal and review. While commenting on major
financial risk Adekanye (1992) the element of banking recognized the need for
banks to seek a harmony between risk rate of returns and liquidity, therefore
in managing assets and liabilities banks must bear, sustained warning growth
and control of exposure to financial risk, he identified these major financial
risk as follows:
MARKET RISK
1. Liquidity
Risk
2. Credit
Risk According to Adekanye, he affect the influence of market force upon the
availability of funds, this create liquidity risk upon the movement of foreign
exchange risks. Market processes are related to economic system of financial
and political developments. To avert a crisis situation in the sources and uses
of fund. Hence the control and management of the market risk can be achieved by
the following:- a. Operation of active money market. Through the naira, money
is not yet matured b. Diversifying sources of funds, types of instrument and
well articulated matching principles. Furthermore, the probability is always
there that credit which is extended to this form of risk, he recommended the
divers to the nature of debtors and their need or location. Added to this is the
maintenance of the standard of credit management. The needs for provision or
bad debts are important in the acceptance of marketable assets securities.
Seminaries, customers need assurance that the bank is always in position to
meet their cash document therefore the bank must to maintain the customer
confidence that measure they must keep sufficient stock for liquid asset and as
statutory liquidity ratio must be observed in bank. Analyzing risk, Mayo BPP
1990 Financial Management study text differentiate risk from uncertainty,
accordingly risk occurs when it is unknown, the future outcome, when the
various possible future outcome may be expected with some degree of confidence
of the knowledge of past or existing events. In the words probabilities of alternatives
outcome can be estimated.
1. Business Risk
2. Financial
Risk Because risk is seen as that associated with a project undertaken,
financial risk is considered as that which helps the company in the areas that
may not be able to make sufficient profit after paying debts interest, to
finance a satisfactory divided method or risk analyzing like using
profitability analyzing for the cash low which is also considered.
Management
of risk has assumed such as important dimension in banking operations, which
could be considered under two main approaches.
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