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RISK MANAGEMENT IN FINANCIAL INSTITUTION IN NIGERIA (A CASE STUDY OF THE UNION BANK PLC )
Based on findings from my research work, it can be ascertained that from the questionnaire passed, the responses shows that there are other ways of managing risk, which are: Government should come to the aid of Union Bank Plc in risk management, The concept of risk management can be effectively applied to financial institution in Nigeria. From the questionnaire distributed, it shows that Union Bank Plc encounter 18.42% of interest risk, 15.29% credit risk, 13.16% portfolio risk 10.52% liquidity risk, 18.43% operating risk 10.53% insurable risk and 13.16% uninsured risk.
1.1 Background of the Study
Financial industries, organisation both private a d public operation in the world of uncertainty. The uncertainty of environment in which organisation operate had led some managerial experts to fashion out a management they called “Risk Management” to reduce that uncertainty that face them.
Businesses are set up for a particular aim(s) and strive hard to achieve them but the uncertainty, is a permanent feature that affects any business organization. Management is expected to continuously mention and manage those risk most effectively at a minimum cost been realized and accepted by some organizations, among which are financial institution which started using the concept to minimize the losses facing them in order to achieve the organisation’s objective.
Risk according to Oxford Advance Learner Dictionary, means the possibility of meeting danger or do suffering harm or loss. This means that it is the uncertainty of financial loss in the concept of this study.
According to Nuidrom (2004) risk management is defined as the protection of assets earning, and people of an enterprise with maximum efficiency and a minimum cost. The effect, risk management provides against the possibility of assets losses so great as to course service in the organisation
1.2 Statement of the problem
Financial institutions are exposed to risks, which affect it effective performance. There are so many risk faced by financial institution today, e.g systematic risks, even fundamental risks, all these and others makes the financial institution risks.
Other risks includes youth restiveness, communal clash and even in today world in Nigeria, we have Boko Haram, also inclusive is kidnapping that become the order of the day. Especially in Nigeria (Delta Region). The banks also face withdrawal or liquidity risk in connection with its ability as a debtor to its depositors in which the creditors may be unwilling to renew or even extend new credit to it.
There is the need therefore, to identify, evaluate and tackle all the problems mentioned above, and doing so, recommend the methodology of total risk management in all financial institution (Union Bank Plc, Ughelli Branch).
1.3 Objective of the Study
The objective of this study are:
- To investigate the extent to which the concept (risk management) could effectively be applied to Union Bank Plc, Ughelli Branch.
- To find out the problem with risk management in Union Bank Plc, Ughelli Branch.
1.4 Research Hypothesis
Ho: The concept of risk management cannot be effectively applied to financial institutions (Union Bank Plc)
Hi: There are no inherent problem with risk management in Union Bank Plc, Ughelli Branch.
1.5 Significance of the Study
This research will be meaningful to the autonomous committee, risk managers in Union Bank Plc, Ughelli Branch, State government, Federal Government and public experts. The study will be beneficial to them since it expose both favourable and unfavourable factors in Union Bank, Ughelli Branch as regard risk management. Moreso, it will help to control risk in financial institutions.
1.6 Scope of the Study
The scope of this work is centered on risk management in financial institutions in Nigeria using Union Bank of Nigeria Plc, Ughelli Branch as a case study.
1.7 Limitation of Study
In the process of carrying out this research, some limitations were encountered. The main problem was finance needed to type and printout questionnaires. My schedule, this made it difficult to distribute questionnaire when necessary.
1.8 Definition of Terms
One of the easily methods of handling risk is to plan towards reducing the effect of likely losses associated with loss prevention and control, all these are the easiest application method for risk reduction. The provision of safety programmes and preventive measure such as burglar alarms, sprinkles, guards are other method used to prevent or control the sovereignty of losses that occur.
- Risk Avoidance
This is the outright avoidance of hazards and risk before they are assumed as one of the ways of handling risks. And it is closely related to the transfer method.
- Risk Transfer
It is a situation where one party transfers the financial effects of loss to another party. In insurance, the insured transfers the possibility of loss to the insurer company in turn for the premium. The insured thereby cover the certainty of a relatively large loss to the certainty of small but fixed annual lost. Other forms of risk transfer can be found in contracts and losses which are used to transfer risks from one party to another to the extent permitted by law.
- Risk Assumption
Once the probability of a loss has been estimated, the risk manager is in good position to decide the best method to adopt in handling risks. It is obvious that an estimated loss would cause no real hardship to a firm, the risk of loss could be well assumed if it is determined that the probability of a loss is high and will be only prudent to seek other means of handling the risk. In such a case, the risk manager must determine whether to insure in whole or in part of self insure.
In practice, self insurance or assumption of risk will, in most cases be applied to meet the cost of losses.
- Risk Sharing
This is the pooling of resources by a large number of investors, in this case, each investor bears only a small portion of each loss, while this is the basis of insurance, non insurance organization also cooperate in this regard to handle specified risks which are peculiar to their professions.
In a broad sense, all activities, personal and non personal business in which the future outcome is known involves management of risks. Risks management is therefore a process which uses human and physical resources to accomplish corporate objectives concerning pure risk exposures.