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Analysing Risk Management in Banks: Evidence of Bank Efficiency and Macroeconomic Impact

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  • Awojobi, Omotola
  • Amel, Roya
  • Norouzi, Safoura
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    Abstract

    The recent Global Economic meltdown triggered by the subprime mortgage crisis of United States in 2007 and its adverse effect on financial markets and participants in the financial industry worldwide have resulted in a capital management crisis in most financial institutions especially banks. This study is a case for the Nigerian banking industry, focusing on factors affecting risk management efficiency in banks. For empirical investigation, we employed Panel regression analysis taking a stratum of time series data and cross-sectional variants of macro and bank-specific factors for period covering 2003 to 2009. Result for panel regression indicates that risk management efficiency in Nigerian banks is not just affected by bank-specific factors but also by macroeconomic variables. This describes the pro-cyclicality of bank performance in the Nigerian banking sector. As it stands, the sufficiency of Basel principles for risk management is doubtful because asset quality varies with business cycles.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33590.

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    Date of creation: 06 Apr 2011
    Date of revision: 17 Jul 2011
    Handle: RePEc:pra:mprapa:33590

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    Keywords: Risk management; Nigerian banks; capital adequacy; Basel; cyclicality;

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    1. J.A. Bikker & H. Hu, 2003. "Cyclical Patterns in Profits, Provisioning and Lending of Banks," DNB Staff Reports (discontinued), Netherlands Central Bank 86, Netherlands Central Bank.
    2. Demirguc-Kunt, Asli & Huizinga, Harry, 1998. "Determinants of commercial bank interest margins and profitability : some international evidence," Policy Research Working Paper Series 1900, The World Bank.
    3. Konishi, Masaru & Yasuda, Yukihiro, 2004. "Factors affecting bank risk taking: Evidence from Japan," Journal of Banking & Finance, Elsevier, Elsevier, vol. 28(1), pages 215-232, January.
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    9. Altunbas, Yener & Liu, Ming-Hau & Molyneux, Philip & Seth, Rama, 2000. "Efficiency and risk in Japanese banking," Journal of Banking & Finance, Elsevier, Elsevier, vol. 24(10), pages 1605-1628, October.
    10. Athanasoglou, Panayiotis & Brissimis, Sophocles & Delis, Matthaios, 2005. "Bank-specific, industry-specific and macroeconomic determinants of bank profitability," MPRA Paper 32026, University Library of Munich, Germany.
    11. Simon Kwan & Robert Eisenbeis, 1997. "Bank Risk, Capitalization, and Operating Efficiency," Journal of Financial Services Research, Springer, Springer, vol. 12(2), pages 117-131, October.
    12. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(3), pages 488-500, August.
    13. Anthony Saunders & Berry Wilson, 2001. "An Analysis of Bank Charter Value and Its Risk-Constraining Incentives," Journal of Financial Services Research, Springer, Springer, vol. 19(2), pages 185-195, April.
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