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THE
IMPACT OF RISK MANAGEMENT ON PROFITABILITY OF GT BANK PLC, ENUGU
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, Enugu. The research questions that guided this
study were: How is risk managed in GT Bank Plc, Enugu branch, Enugu? What are
the constraints militating against risk management and credit administration in
GTBank Plc, Enugu? 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, Enugu 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, Enugu branch, Enugu
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, Enugu 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, Enugu Branch, Enugu. 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, Enugu
branch, Enugu. 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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