THE IMPACT OF RISK MANAGEMENT ON PROFITABILITY OF GT BANK PLC, MURTALA MOHAMMED SQUARE BRANCH KADUNA
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THE IMPACT OF RISK MANAGEMENT ON PROFITABILITY OF GT BANK PLC, MURTALA
MOHAMMED SQUARE BRANCH KADUNA
TABLE OF CONTENTS
Title
page - - - - - - - - i
Declaration
- - - - - - - - ii
Certification
- - - - - - - - iii
Approval - - - - - - - - iv
Dedication
- - - - - - - - v
Acknowledgement - - - - - - - - vi
Table
of Contents - - - - - - - - vii
Abstract
- - - - - - - - - xi
CHAPTER
ONE: Introduction
1.1 Background of the Study - - - - - - 1
1.2 Statement of the problem - - - - - 2
1.3 Research Question - - - - - - 3
1.4 Objective of the study - - - - - - 3
1.5 Statement of Hypothesis - - - - - - 3
1.6 Significance of the study - - - - - - 4
1.7 Scope of the study - - - - - - - 4
1.8 Definition of Terms - - - - - - 4
CHAPTER TWO – Literature Review
2.1 Introduction - - - - - - - 5
2.2 Conceptual Framework - - - - - - 5
2.3 Review of Research Literature - - - - - 17
2.4 Review of Related Empirical Literature - - - - 28
2.5 Summary of the Literature - - - - - 36
CHAPTER THREE: Research Methodology
3.1 Introduction - - - - - - - 37
3.2 Research Design - - - - - - - 37
3.3 Population of the Study - - - - - - 37
3.4 Sample Size - - - - - - - - 37
3.5 Sources and Method of Data Collection - - - 37
3.6 Validity of Instrument - - - - - - 38
3.7 Reliability of the Instrument - - - - - 38
3.8 Method of Data Collection - - - - - 38
3.9 Method of Data Analysis - - - - - - 39
CHAPTER FOUR: Data Presentation
and Analysis
4.1 Introduction - - - - - - - - 40
4.2 Respondents Characteristics - - - - - 40
4.3 Data Presentation and Analysis - - - - - 41
4.4 Summary of Findings - - - - - - 46
4.5 Discussion of Findings - - - - - - 46
CHAPTER FIVE: Summary, Conclusion
and Recommendation
5.1 Summary - - - - - - - - 48
5.2 Conclusion - - - - - - - - 39
5.3 Recommendations - - - - - - - 49
Bibliography - - - - - - - 53
Appendix - - - - - - - 54
ABSTRACT
The study examines Risk Management and Credit
Administration in GT Bank Plc, Murtala Mohammed square branch Kaduna. The
research questions that guided this study were: How is risk managed in GT Bank
Plc, Murtala Mohammed Square branch, Kaduna? What are the constraints
militating against risk management and credit administration in GTBank Plc,
Murtala Mohammed square branch Kaduna? What are the solutions to the identified
problems. The survey method was used as the research design. The entire
population of 30 person from credit department of GT Bank Plc, Murtala Mohammed
Square branch Kaduna were used as the
sample size. A questionnaire design in five likert scale was used as the
instrument of data collection. The mean (x) was used to analyze data. The
result of findings indicates that risk is mainly managed in Gt Bank Plc,
Murtala Mohammed Square branch, Kaduna through embarking on insuring customer
deposit with NDIC as well as proper evaluation and monitoring of policy as well
as efficient appraisal of proposed on investment that would be finance with
bank loan. However, the problems confronting risk management and credit
administration are basically defective procedures of loan appraisal as well as
dearth of knowledge and skills in credit administration and risk management.
Commercial bank should establish sound and competent credit risk management
units and recruit well motivated staff, credit officers are the cutting edge of
credit administration. As such issue pertaining to their selection, training,
placement, job evaluating reward and discipline need to be tackled effectively.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Risk Management is the
identification assessment and prioritization of risks. It is the effect of
uncertainty on objectives, whether positive or negative followed by coordinated
and economic of application of resources to monitor and control the probability
and/or impact of unfortunate events or to maximize the realization of
opportunities (Okeh, 2006).
The survival of every
commercial bank depends on its ability to manage its risks and loans or advance
portfolio effectively. However in the recent past, commercial banks in Nigeria
witnessed rising non-performing credit portfolios and these significantly
contributed to the financial distress in the banking sector.
Financial organization
need to manage the credit risk inherent in the entire portfolio as well as the
risk in individual credit or transaction. This is so because the survival and
ability of financial institution to compete depend on their ability to
profitability and manage credit risk. This is the reasons why lending is based
on the two fundamental products of banking: money and information. Banks obtain
these products from customers themselves by offering customer valuable
services. They package money and information about their borrowers together
with valuable banking services to create loan agreements and sell the loan
agreements back to their customers (Hempel and Simonson, 2007).
As such, risk rating
system in financial institution contains both objective and subjective
elements. Objective aspect are based on financial statements and application of
certain financial ratio that reflect liquidity, leverage and earnings. Despite
the requirement that risk be quantified, risk rating systems always have a
subjective dimension that attempts to capture intangibles such as the quality
of management, the borrower’s status within the industry, and the quality of
financial reporting. These subjective items may result in inconsistencies.
It is in this regard that
many financial institutions have faced difficulties over the years arising from
their inability to effectively manage credit risk. As such the major cause of
serious banking problems continues to be directly related to tax credit
standard for borrowers and counterparties, poor portfolio risk management, or
lack of attention lead to a deterioration in the credit standard of a bank’s counterparties.
Hence, the need to investigate the subject
matter of this research becomes imperative.
1.2 Statement of the Problem
Commercial banks in the
recent past witness rising non-performing credit portfolios sequel to the
inability of their management to effectively manage risk and credit
administration. That problem resulted to high bad debts in commercial bank and
a number of other commercial banks were classified as distressed banks by the
monetary authorities.
Consequently, the need to
examine the subject matter: An Assessment of risk management and credit
administration in Union Bank Plc, Kaduna Main branch becomes worthy of
investigation.
1.3 Research questions
In
order to actualize the objectives of this research, the following research
questions was formulated to guild this study:
1)
What
are the Methods of Risk Management in GT Bank Plc?
2)
How
is Credit administered in GT Bank Plc?
3)
What
are the constraints of Risk Management and Credit Administration in GT Bank
Plc?
1.4 Objectives of the Study
The central objective of
the study is to assess the impact of risk management on the profitability of GT
Bank Plc, Murtala Mohammed Square Branch, Kaduna. The specific objectives are:
1. To
find out the method of risk management used in GT Bank Plc.
2. To
identify to how credit is administered in GT Bank Plc.
3. To
identify the constraints militating against risk management and credit administration in GT Bank Plc.
1.5 Statement
of Hypothesis
1. H0: Effective credit risk management is not a strong
determinants of banks profitability
H1:Effective credit risk management is a
strong determinants of banks profitability
2. H0
Poor credit risk management does not lead to bank distress.
H1 poor credit risk management lead to bank
distress.
3. H0 risk management does not enhances the
performance of banks in terms of profitability.
H01
risk management enhances the performance of banks in terms of profitability.
1.4 Significance of the Study
This study will be
beneficial to financial institution especially GT Bank Plc, as they utilize the
finding of this study as a basis for policy formulation regarding risk
management and credit administration in Banks. The shareholders, stakeholders
and the entire society will benefit from this study.
1.6 Scope of the Study
To this end, the study
will examine which is the best way to manage risk in GT Bank Plc, Murtala
Mohammed Square branch, Kaduna. The branch manager, other staff and customers
of the branch are to be questioned in the course of the study
1.7 Definition of Terms
1. Credit
Risk: This refers to delinquency and default by borrowers i.e. failure
to make payment as at when due.
2. Pure
Risk: This refers to reduction in business value as a result of damage
to business property by theft, robbery, fire, flood or the prospect of
premature death of employee due to work-related illness or accident.
3. Price
Risk: This refers to variability in cash flows due to change in input
and output prices.
4. Credit
Administration: This is the system used in managing the exposure of
financial institution to loan delinquency and default.
5. Business
Risk: This refers to variability in cash flow.
6. Loan
Appraisal: This is the process of determining in advance the various
lending parameters and determining the overall loan limit for each borrower
based on his debt capacity, loan duration.
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