THE IMPLICATIONS OF RISK MANAGEMENT IN THE NIGERIAN FINANCIAL SERVICE SECTOR
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:
- To determine the implications of risk management in the Nigerian financial service sector.
- To determine the risk management strategies and /or techniques adopted is the Nigerian financial sector.
- To identify the various types of risks that occur in the Nigerian financial sector.
- 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.
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