ABSTRACT
Businesses in the Nigerian financial services sector are continuously and relentlessly seeking the best and appropriate risk management strategies and/or techniques to be adopted, which would enable them to operate effectively and successfully within the harsh business terrain, surrounded by, and filled with risks and risk factors.
This study took a critical examination at the risk management strategies adopted in the Nigerian financial service sector, while studying selected financial institutions within the sector. These selected financial institutions included two banks and one insurance institution located within Enugu metropolis. On the one hand, risk is defined as the prospect of financial loss attributable to unforeseen changes in underlying risk factors. On the other hand, risk management is defined as a series of measures under taken by a business towards managing or controlling risk or likely risk occurrence, by averting it or minimizing its overall impact on the organization.
The Objectives that were set out be achieved by this research study included the following:
(a) To determine the implications of risk management in the Nigerian financial service sector.
(b) To determine the risk management strategies and /or techniques adopted is the
Nigerian financial sector.
(c) To identify the various types of risks that occur in the Nigerian financial sector.
(d) To identify areas where risk management is applied in the Nigerian financial sector. The sample size for this research was set at 190, and the researcher employed the tools of
physical interviews and questionnaires to source for primary data. The secondary data was gotten via journals and publications on related topics. This researcher also used the chi-square and correlation analysis in testing the formulated hypotheses.
The findings from this research work reliably revealed that almost all the respondents who responded to the questions in the questionnaires agreed to the fact that; there are several implications of risk management in the Nigerian financial service sector, both positive and negative; there are several risk management strategies and /or techniques adopted in the Nigerian financial sector which help to eliminate or minimize risk or likely risk occurrences; there are various types of risks that occur in the Nigerian financial sector; and finally, there are several areas where risk management is usually applied in the Nigerian financial sector.
Based on the findings, appropriate recommendations were made to the targeted audience, and a conclusion was drawn.
CHAPTER ONE INTRODUCTION
1.1 BACKGROUND OF STUDY
Business firms all over the world today, Nigeria in particular operate successfully in a harsh business terrain, owing to the fact that consumers have come to accept and embrace them and what they offer. The fact that there are usually two or more firms competing and offering similar goods and/or services, notwithstanding; the difference however between one firm and the other(s) is seen in the quality of the goods and services being offered. Nevertheless, these firms in their efforts to meet their customer
needs are often faced with a lot of challengers, what is widely known today as risks. Thus, the concept of risk management as the best way of tackling this problem was developed. Risk and risk management are the results of intensive study on the causes and effects of business success and failure today, especially in the Nigerian financial sector.
The International Organization for Standardization (ISO) has defined risk management as the identification, analysis, evaluation, treatment (control), monitoring, review and communication of risk and risk factors.
On the other hand, risk can be defined as the prospect of financial loss attributable to unforeseen changes in underlying “risk factors”. These risk factors are the key drives affecting business and their financial results. Such risk factors can be equity prices, interest rates, exchange rates, share values, commodity prices etc.
Risk is inherent in every business and every organization has to manage it according to its size and nature of operation because without it no organization can survive in the long run.
Risk management is only appropriate for the simple verity that one cannot envisage the future. Risk management however, can do very little to reduce variability since markets will continue to fluctuate no matter how advanced risk management gets. It can be very powerful in reducing uncertainty for those involved in risk taking decisions and actions.
1.2 STATEMENT OF PROBLEM
The Nigerian financial service sector is faced with a number of problems, some of which are stated below:-
1) Determining the implication of risk and risk management in the
Nigerian financial service sector.
2) Identifying the risk management techniques or strategies adopted in the Nigerian financial service sector.
3) Identifying the various types of risks inherent in the Nigerian financial service sector.
4) Identifying the areas where risk management is applied in the
Nigerian financial service sector.
1.3 OBJECTIVES OF STUDY
The specific objectives intended to be achieved by this study include the following:
1) To identify the risk management techniques or strategies adopted in the Nigerian financial service sector.
2) To evaluate the implications of risk management in the Nigerian financial service sector.
3) To identify the types of risks that occur in the Nigerian financial service sector.
4) To identify the areas where risk management is applied in the
Nigerian financial service sector.
1.4 RESEARCH QUESTIONS
Based on the objectives of this study the following questions will be answered in the course of the work:
1) What are the risk management techniques or strategies adopted in
the Nigerian financial service sector?
2) What is the implication of risk management in the Nigerian financial service sector?
3) What are the types of risks inherent in the Nigerian financial service sector?
4) In what areas is risk management applied in the Nigerian financial service sector?
1.5 RESEARCH HYPOTHESES
In order to realize the objectives of this study, the following research hypotheses have been formulated:
1. Ho: Risk reduction, risk retention and risk transfer are not some of
the risk management strategies adopted in the Nigerian financial service sector.
H1: Risk reduction, risk retention and risk transfer are some of the risk management strategies adopted in the Nigerian financial service sector.
2. Ho: Bankruptcy, business solvency and low return on investment are not some of the implication of risk management in the Nigerian financial service sector.
H1: Bankruptcy, business solvency and low return on investment are some of the implications of risk management in the Nigerian financial service sector.
3. Ho: Credit, liquidity and operational risks are not types of risks that occur in the Nigerian financial service sector.
H1: Credit, liquidity, market and operational risks are types of risks that occur in the Nigerian financial service sector.
4. Ho: Project management, corporate business expansion and Franchising are not some of the areas where risk management is applied in the Nigerian financial service sector.
H1: Project management corporate business expansion and franchising are some areas where risk management is applied in the Nigerian financial service sector.
1.6 SIGNIFICANCE OF THE STUDY
The study is significant to the following group of people:
1) The Nigerian financial service sector- It will enlighten the Nigerian financial service sector on risk management strategies and areas where risk management can be applied.
2) The Government- It will enhance government’s knowledge about risk management and will enable the government to adopt strategies that will go a long way in reducing risks.
3) The scholars and students- it will serve as reference material for further studies on risk management.
1.7 SCOPE AND LIMITATIONS OF THE STUDY
The study focuses on risk management in the Nigerian financial sector- what risk and risk management is all about, the principles, process and limitations of risk management. It also discusses the risk management plan and framework.
The constraints encountered by the researcher in the course of this study include the following:
1. Time– Due to the short time frame given to complete the research, the researcher was not able to visit most of the financial institutions and so focused on a few.
2. Financial constraints- This researcher faced a lot of financial
constraints owing to the enormous financial demands of embarking on the research.
3. Attitude of the Respondents- Some of the respondents failed to provide or withheld information about their organizations.
1.8 DEFINITION OF TERMS
Risk- The prospect or expectancy of a future loss attributable to unforeseen changes in underlying risk factors.
Risk Management- The process of adopting strategies and techniques that will aid businesses in averting the occurrence of loss attributable to risk, or minimizing and managing their likely effect if they eventually occur.
Financial Services Sector- Operators and players in an industry involved in the rendering of all kinds of financial services, such as: banking, insurance, stock broking services etc.
1.9 HISTORICAL BACKGROUND OF THE STUDY UBA PLC
Today’s United Bank for Africa Plc (UBA) is the product of the merger of Nigeria’s third and fifth largest banks, namely:- the old UBA and the erstwhile standard Trust Bank Plc (STB) respectively, and a subsequent acquisition of the erstwhile continental Trust bank Limited (CTB). The union emerged as the first successful corporate combination in the history of Nigerian banking
Today, UBA is one of Africa’s leading financial institutions offering universal banking to more than 7 million customers across 750 branches in 16 African countries. With presence in New York, London and Paris and assets in excess of 19bn US Dollars, UBA is a sire partner for banking services for Africans and African related businesses globally.
FIDELITY BANK PLC
Fidelity Bank Plc began operations in 1988, as a merchant bank. In
1999, it converted to commercial banking and then became a universal bank in February 2001. The current enlarged fidelity Bank is a result of the merger with the former F&B international Bank Plc and Manny Bank Plc (under the Fidelity Brand name) in December 2005:
Fidelity Bank is today ranked amongst the top 10 in the Nigerian banking industry, with presence in the major cities and commercial centers of Nigeria. Over the years, the bank has been reputed for integrity and professionalism. It is also respected for the quality and stability of its management and management processes.
The management of the bank is focused on building and maintaining a virile and well-respected brand that caters to the needs of its growing corporate, commercial and consumer banking clientele.
NICON INSURANCE PLC
Nicon Insurance Plc was incorporated on April 2, 1969 to underwrite non-life class of insurance business, as the Nigeria Insurance company limited and white cross Insurance company Limited, both overseas insurance companies. The company commenced operations on October 1, 1969.
In 1990, the Nigerian government divested its holdings in the company under the Federal Government Privatization and commercialization programme. The company was thereafter renamed “NICON Insurance Plc”, by a resolution passed by shareholders at her
29th Annual General Meeting in Lagos on November 9, 1994.
Since its incorporation in 1969, Nicon Insurance Plc has built a reputation as a strong underwriting house providing its numerous policyholders the security of its financial Reserves. Underwriting expertise and First-Class Reinsurance Treaties. Many years after inception, Nicon continues to deliver quality service consistent with the Nicon brand name to it market.
This material content is developed to serve as a GUIDE for students to conduct academic research
THE IMPLICATIONS OF RISK MANAGEMENT IN THE NIGERIAN FINANCIAL SERVICE SECTOR
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