Effect of Risk Management on Financial Performance of Quoted Deposit Money Banks in Nigeria

Abstract

Corporate risk management has become more important for businesses, particularly in today's dynamic and emerging risk environment. Risk management issues in the banking sector do not only impact bank performance but also on national economic growth and general business development. Against this background, this study investigates the effect of Risk Management on Financial Performance of quoted Deposit Money Banks in Nigeria from 2009-2018. The independent variable (risk management) is measured by Non-Performing Loan Risk and Foreign Exchange Risk while, Return on Assets measure the dependent variable – Financial Performance. Data were sourced from the financial statements of the sampled Deposit Money Banks for the ten (10) years period under study. The pre-estimation tests conducted were Pairwise correlation, variance inflation factor (VIF), descriptive statistics, Shapiro-Wilk normality test. The hypotheses were tested using Panel Least Squared multiple regression technique. The results show that Non-Performing Loans Risk has a significant negative effect on Return on Assets. The results further show that Foreign Exchange Risk has an insignificant positive effect on Return on Assets of Nigerian Deposit Money Banks from 2009-2018. The study recommends amongst others that management of banks should ensure that, the profile and business potentials of customers are well studied before granting loan facilities to minimize defaults to maximize profit and shareholders’ interest.