The effects of financial risks on financial performance of commercial banks in Nigeria
This study investigates the effects of financial risks on financial performance of selected commercial banks in Nigeria. The existing researches on financial risk and financial performance relationships in Nigeria are sketchy and inconclusive as well as they are more focus on individual financial...
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| Format: | Thesis |
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| Language: | English |
| Subjects: | |
| Online Access: | http://dspace.unimap.edu.my:80/xmlui/bitstream/123456789/76630/1/Page%201-24.pdf http://dspace.unimap.edu.my:80/xmlui/bitstream/123456789/76630/2/Full%20text.pdf http://dspace.unimap.edu.my:80/xmlui/bitstream/123456789/76630/3/Declaration%20Form.pdf |
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| Summary: | This study investigates the effects of financial risks on financial performance of selected
commercial banks in Nigeria. The existing researches on financial risk and financial
performance relationships in Nigeria are sketchy and inconclusive as well as they are
more focus on individual financial risk components. Data on audited financial reports of
the selected sixteen (16) commercial banks listed in the Nigerian stock market have been
collected for the period of 7 years (2009-2015), making up to 112 data observations. Panel
data approach is employed in the study for the analytical model with the following steps:
unit root test, Hausman test for random or fixed effect choice and hypothesis testing. The
study use software, Stata version 13 for the analysis. The dependent variables in this study
comprise of bank financial performance proxy by return on asset; operational efficiency;
and net interest margin, while the independent variables consist of financial risk proxy by
operational risk; credit risk; liquidity risk; and market risk. The controlled variables used
in this study include bank size and GDP growth rate. Based on random effect analysis on
the model, credit risk-1 (CR1) has a negative significant effect on return on asset (ROA)
and net interest margin (NIM), suggesting that the lower credit risk-1, is the better the
bank performance in terms of ROA and NIM. Credit risk-2 (CR2) and market risk also
has a positive significant impact on NIM, suggesting that the lower credit risk-2 and
market risk, is the better the bank performance in terms of NIM. The analysis also found
that liquidity risk is not important determinant to the financial performance of commercial
banking sector in Nigeria, as compared to operational risk. In fixed effect analysis,
operational risk and market risk significantly affect operational efficiency (OE)
positively, suggesting that the higher operational risk and market risk, the better the bank
performance in term of OE. Hence, the findings recommend that commercial banks
should adopt proactive approaches to improve risk management in order to maximize
financial performance. The study contributes to the understanding of the relationship
between financial risk and financial performance, evidently useful for policy makers and
future researchers as referral. The study also suggests that future research might possibly
examine the nexus between financial risks and financial performance with regards to
other sectors of the economy and across countries comparison |
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