THE IMPACT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT ON BANK PERFORMANCE: A STUDY OF SELECTED BANKS IN NIGERIA
ABSTRACT
The focus of this research is on the impact of corporate governance and risk management on the performance of Nigerian banks. The major objective of this study is to understand the relationship between risk exposure, risk management, corporate governance and banks’ operational efficiency. Five research questions were designed in the following order: Do commercial banks formulate and implement risk management policies and strategies in their organizations? Do bank officials understand the concept and usefulness of risk management strategies in the banking system? Do bank officials understand the relationship between corporate governance and risk exposure? Do bank officials understand the relationship between corporate governance and risk management? Does corporate governance and risk management have any impact on the operational efficiency of a bank? Similarly five hypotheses were formulated to provide answers to the above research questions. A review of related literature covers issues such as risk exposure and types of risks in the Nigerian banking sector, such as credit default risk, operational risk, reputational risk, human resources risk, and risks associated with mergers and acquisition. The literature review also deals with the nature of risk management in Nigerian banks and the issue of corporate governance in the Nigerian banking system. The study makes use of a combination of three sets of data: (i) structured questionnaire, (ii) personal interview and (iii) published materials. This approach provides a research design when it is necessary to make use of one method of data collection to complement the disadvantages of the other. The research is exploratory with the survey approach. Findings show that there is a strong relationship between risk management, corporate governance and the health and efficiency of a bank. Findings also indicate that the banks that instituted good corporate governance mechanisms performed better than those without such mechanisms. The study shows that the banks that scored low in risk management and corporate governance are more exposed to risk. The study concludes that risk management and good corporate governance is good for operational efficiency among Nigerian banks. It is recommended that observance of good corporate governance by Nigerian banks will make them efficient, effective, responsive and accountable corporations that contribute to the welfare of society by creating sustainable wealth, employment with integrity, probity and transparency.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgement v
Abstract vi
List of Tables xii
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of Problem 4
1.3 Objectives of the Study 5
1.4 Research Questions 6
1.5 Statement of Hypotheses 7
1.6 Scope of the Study 7
1.7 Significance of the Study 8
1.8 Limitation of the Study 9
1.9 Definition of Key Terms 10
1.11 References 13
CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction 14
2.1 Risk Exposure and Types of Risks in the Nigerian Banking Sector 15
2.2 A Review of Risks in the Banking Sector 17
2.3 Nature of Risk Management in the Nigerian Banking Sector 33
2.4 Corporate Governance in the Nigerian Banking System 46
2.5 Summary of Chapter Two 50
2.6 References 51
CHAPTER THREE: RESEARCH METHODOLOGY
30 Introduction
3.1 Research Design 52
3.2 Sources of Data 53
3.3 Population of Study 54
3.4 Sample size and Sampling Technique 56
3.5 Methods of Data Collection 56
3.6 Validity 57
3.7 Method of Data Analysis 57
3.8 Summary of Chapter Three 57
3.9 References 59
CHAPTER FOUR DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.0 Introduction 60
4.1 Employees Demographic Data 61
4.2 Data Presentation and Analysis 66
4.3 Discussion of Findings 81
4.5 Summary of Chapter Four 85
4.6 References 87
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.0 Summary 8
5.1 Summary of study 88
5.2 Conclusion 92
5.3 Recommendation 94
APPENDIX
Introductory Letter 98
Questionnaire on Demographic Data 99
Questionnaire on Employee Perception of Risk Exposure,
Governance and Performance 99
Bibliography 103
CHAPTER ONE
1.1 ...
1.2 STATEMENT OF THE PROBLEM
From the foregoing discussion, it is apparent that corporate governance and risk management is a crucial element in our nation’s quest to sanitize the banking and monetary system. To be able to compete in the global economic system, Nigerian banks must be able to manage their assets in a risk-free environment. Unfortunately, most commentators on the Nigerian banking system have shown that the management of risk is problem area that must be overcome if our monetary policies are to achieve their stated objectives. In this project, we see risk management as a crucial area worthy of exploration in order to understand whether or not our banks are adhering to the principles of corporate governance and risk management, and if not what could be done to rectify the problem.
1.3 OBJECTIVES OF THE STUDY
The general objective of this study is to understand the principles of corporate governance, risk exposure and risk management and its implication on the performance of the banking sector. From the problem statement, we can see that one of the major problems facing the Nigerian banking sector is the inability of the banks to manage risk exposure and poor corporate governance. Consequently and specifically, the objectives of this study are:
(i) To ascertain if the banks selected for this research have instituted risk-management policies and strategies in their organizations,
(ii) To understand whether or not the banks selected for this study understand the concept and usefulness of risk management strategies in the banking system.
(iii) To understand the relationship between corporate governance and risk management.
(iv) To evaluate if risk management systems have impact on the health and efficiency of a bank.
(v) To make suggestions on ways to adopt and implement risk management strategies in the banking system.
1.4 RESEARCH QUESTIONS
The ability to institute good corporate governance structures and manage risk exposure by banks is crucial for the growth of the Nigerian economy. Therefore, an understanding of corporate governance, risk exposure and strategies for managing risk in the Nigerian banking industry is important. In order to achieve these objectives, the following research questions were used and as a guide for the formulation of the questionnaire used for this study.
- Do Commercial banks formulate and implement risk management policies and strategies in their organizations?
- Do bank officials understand the concept and usefulness of risk management strategies in the banking system?
- Do bank officials understand the relationship between corporate governance and risk exposure?
- Do bank officials understand the relationship between corporate governance and risk management?
- Does risk management have any impact on the operational efficiency of a bank?
1.5 STATEMENT OF HYPOTHESES
