Volume 7, Issue 4, July 2019, Page: 122-131
Effectiveness of Risk Management Strategies Among Deposit Money Banks in Nigeria
Folorunso Ilesanmi Akande, Bursary Division, Babcock University, Ilishan-Remo, Nigeria
Yimka Samson Akanfe Alalade, Department of Banking and Finance, School of Management Sciences, Babcock University, Ilishan-Remo, Nigeria
Received: Jul. 24, 2019;       Accepted: Aug. 19, 2019;       Published: Sep. 6, 2019
DOI: 10.11648/j.jfa.20190704.13      View  14      Downloads  12
Abstract
Deposit Money Banks (DMBs) face formidable challenges in order to operate profitably. As business entities poised to maximise shareholders’ wealth, they need to grow their revenue while at the same time keep their cost of funds as low as possible. The threats to achieving this come from the mandatory cash reserve ratio that restricts reasonable chunk of deposits from being invested, and their attempt to build-up deposit portfolio that tilts more towards non-interest paying demand deposit. Since the most profitable assets of the DMBs are the loans and advances, the booking of these risk assets for credit worthy customers who will meet maturing obligations as at when due, constitutes the greatest task to management. This paper is a study to determine how effective risk management practices have been among the DMBs in the Nigerian financial services sector. Survey research design was employed. The study population consisted of twenty-six (26) DMBs from which 10 were selected using purposive sampling technique. The primary data were obtained through a validated structured questionnaire. Reliability of the instrument was assessed, yielding Cronbach’s Alpha coefficients for the constructs that ranged between 0.818 and 0.873. The collected data were analysed using Relative Importance Index (RII) and Mean Score Index. Findings revealed that risk management practices were effective among the DMBs in Nigeria with RII of the 7 segments in the risk management practices above 0.80. The board of directors’ involvement came highest with 0.90. The use of loan syndication came last with 0.82 within the risk management strategy segment. The study concluded that the active interest of the board of directors in the risk management practices contributed immensely to the effectiveness among the DMBs. The study recommends that the Central Bank of Nigeria should bring down the cash reserve ratio that restricts credit creation and causes high cost of funds, and also pay interest rate on cash reserves held by the bank.
Keywords
Relative Importance Index, Risk Management, Risk Management Practices, Liquidity Management
To cite this article
Folorunso Ilesanmi Akande, Yimka Samson Akanfe Alalade, Effectiveness of Risk Management Strategies Among Deposit Money Banks in Nigeria, Journal of Finance and Accounting. Vol. 7, No. 4, 2019, pp. 122-131. doi: 10.11648/j.jfa.20190704.13
Copyright
Copyright © 2019 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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