Abstract
The study examined risk management approach and banks’ portfolio investment performance in Nigeria. The study hypothesized that there is no relationship between risk management and banks’ portfolio investment performance in Nigeria. Employing secondary data based on a 5 year annual reports and financial statements of accounts of 10 Deposit Money Banks (DMBs) in Nigeria and using the Generalized Method of Moment (GMM), the result shows a negative but significant relationship between risk management and banks’ portfolio investment performance measured by Return on Asset (ROA) while the explanatory variables were measured by credit risk (CRD) doubtful and non performing loans (NPLS), liquidity risk (LQR) measured by current ratio and market risk (MKR) measured by interest rate. In the light of the foregoing findings and using the result of the t-statistic, the study rejects the null hypothesis and concludes that a significant relationship exists between risk management approach and banks’ portfolio investment performance and thus recommends the need for banks to practise prudential risks management approach as risk management is critical in the banking sector in order to improve on their portfolio investment performance so as to protect not just both the stakeholders and shareholders’ interest but also the national economic growth and general macroeconomic stability and business development. Keywords: Banking Sector, Financial Statement, Portfolio Performance, Risk Management. DOI : 10.7176/RJFA/10-6-10 Publication date :March 31 st 2019
Highlights
The banking industry has experienced huge and dramatic losses in the past decades occasioned by risk management failures
Employing secondary data based on a 5 year annual reports and financial statements of accounts of 10 Deposit Money Banks (DMBs) in Nigeria and using the Generalized Method of Moment (GMM), the result shows a negative but significant relationship between risk management and banks’ portfolio investment performance measured by Return on Asset (ROA) while the explanatory variables were measured by credit risk (CRD) doubtful and non performing loans (NPLS), liquidity risk (LQR) measured by current ratio and market risk (MKR) measured by interest rate
In the light of the foregoing findings and using the result of the tstatistic, the study rejects the null hypothesis and concludes that a significant relationship exists between risk management approach and banks’ portfolio investment performance and recommends the need for banks to practise prudential risks management approach as risk management is critical in the banking sector in order to improve on their portfolio investment performance so as to protect not just both the stakeholders and shareholders’ interest and the national economic growth and general macroeconomic stability and business development
Summary
Reduced the overall credit risk in the asset portfolio and increase the probability of partial or full repayment of principal and / or interest. Adopting a panel data estimation technique, their findings revealed an inverse relationship between financial performances of banks and doubt loans, and capital asset ratio was found to be positive and significant This finding implies that the higher the managed funds by banks the higher the performance of their portfolio investments. Using the ratio of loan and advances to total deposit, the result reveals that there is a significant www.iiste.org relationship between bank performances in terms of profitability and credit risk management which is loan performance. Ahmed, Akhtar and Usman (2011), investigated risk management practices and Islamic banks in Pakistan They used credit, operational and liquidity risk as dependent variables while size, leverage, NPLs ratio, capital adequacy and asset management were utilized as explanatory variables for the period of four years from 2006 – 2009. The GMM is adopted for this study due to its versatility and suitability in measuring market risk
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