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

Awojobi, Omotola and Amel, Roya and Norouzi, Safoura (2011): Analysing Risk Management in Banks: Evidence of Bank Efficiency and Macroeconomic Impact. Forthcoming in:

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Risk management; Nigerian banks; capital adequacy; Basel; cyclicality
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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