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STRATEGIES FOR MANAGING INVESTMENT RISKS IN PERIOD OF ECONOMIC CRISES A case study of First Bank Nigeria

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 Format: MS WORD ::   Chapters: 1-5 ::   Pages: 59 ::   Attributes: Data Analysis ::   1,382 people found this useful

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CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND TO THE STUDY

The economic crisis has prompted an immediate response by governments and organizations to avoid a collapse of the investments (financial and non-financial) and banking systems and limit the economic effects of the credit crunch. It should however be noted that the crisis should not damage the drivers of long-term growth which are the investments, but should instead be used as a springboard to accelerate structural shifts towards a stronger, fairer and cleaner strategy in managing the investments risks with a view of ensuring a better economic future for the nation (Joel, 2009). From the foregoing, the researcher is examining the strategies for managing investment risks in period of economic crises with focus on the banking industry, specifically the First Bank Nigeria.

Organizations are very useful to economic development through the services they provide. Their entrepreneurial role can be said to be a catalyst for economic growth. The efficient and effective performance of the banking organization over time is an index of financial stability in any nation. The extent to which a bank extends their operation to the public for productive activities accelerates the pace of a nation’s economic growth and its long-term sustainability (Kolapo, Ayeni & Oke, 2012). In the 21st century business environment is added multifaceted and intricate than ever. The majority of businesses have to trade with uncertainties and qualms in every dimension of their operations. Without a doubt, in the present-day’s unpredictable and explosive atmosphere all the banks are in front of a hefty investment risks like: credit risk, liquidity risk, operational risk, market risk, foreign exchange risk, and interest rate risk, along with others risks, which may possibly intimidate the survival and success of the organizational corporate performance. The Nigerian banking industry has been strained by the deteriorating quality of its investment risk related assets as a result of the significant dip in equity market indices, global oil prices and sudden depreciation of the naira against global currencies (BGL Banking Report, 2010). The poor quality of the banks’ loan assets hindered banks to extend more credit to the domestic economy, thereby adversely affecting economic performance. This prompted the Federal Government of Nigeria through the instrumentality of an Act of the National Assembly to establish the Asset Management Corporation of Nigeria (AMCON) in July, 2010 to provide a lasting solution to the recurring problems of non-performing loans that bedeviled Nigerian banks (Kolapo, et al, 2012).

In the last few years, Nigerian banking industry suffered an historic retrogressive trend in both profitability and capitalization. Just 3 out of 24 banks declared profit, 8 banks were said to be in ‘grave’ situation due to capital inadequacy and investment risk asset depletion; the capital market slummed by about 70 percent and most banks had to recapitalize to meet the regulatory directive (CBN, 2010). This performance in the banking sector eroded public confidence in banking and depositors funds aggregately dropped by 41% in the period. Possibly due to financial liberalization and globalization, the fact is there has been a reckless abandonment of the essentials of managing investment risk in times of economic boom and recession; the volatility of bank earnings has been under-rated by bank managements.

The recent economic crisis has focused attention on investment risk management, but managing investment risk is all about achieving objectives (Woods, Kajüter, and Linsley, 2008; Van der Stede, 2009). Senior managers in particular, are expected to build sustainable performances: create value at acceptable investment risk levels over time (Calandro and Lane, 2006). To this end, they should be clearly aware of the multiple sources and types of investment risks (CIMA, 2007). A stronger focus on investment risk in performance reports addressed to senior managers can address such expectation. Incorporating investment risk into performance management processes can foster a better understanding of the overall organizational risk exposure and improve business results. The way in which senior managers are made aware of investment risks via top management reporting is however an open ground where different professions and processes may find a role. On the one hand, the reporting of high level investment risk information is considered a constituent element of enterprise-wide investment risk management frameworks. These attempts to provide an overview of crucial investment risks, integrating traditional, function-specific investment risk management efforts to stabilize the system during the period of economic crises.

1.2       STATEMENT OF THE PROBLEM

Investments generally are influenced by factors which are incremental to life including risks. Factories may be destroyed by fire, and valuable stocks could be stolen or destroyed during the incident. Behind all these events a great deal of anxiety and grief lies in risky activities one may venture into as can be imagined for those closely involved. It is impossible for any individual or enterprise to operate in a risk free environment. The researcher is however of the opinion that adequate methods for managing such investment risks especially during the period of economic recession occasioned by cash crunch must be properly selected and adopted.

It is also indeed bewildering when one begins to examine the Nigerian scenario of the economic crises; it is incomparable and sometimes very bizarre contrary to what obtains in other advanced countries. The researcher is also of the observation that it is difficult for Nigeria Banks to find a lasting solution to the seeming customary problems in the industry. The study therefore attempts to assess the strategies for investment risk management obtainable in the First Bank of Nigeria in this period of economic crisis. The consequences of bank failures are numerous and very unpalatable, not only to the depositors but also the investors, the general banking public and indeed, the entire economy. The regulators and operators have also not had it easy when financial institutions collapse. Bank failures, in general, impair financial intermediation and efficient allocation of resources. They retard individual well-being and economic progress. Hence, the need to understand the appropriate strategies for managing bank’s investment risks in the period of economic recession.

1.3       OBJECTIVES OF THE STUDY

The general objective of this study is to assess the strategies for managing investment risks in period of economic crises while the following are the specific objectives:

  1. To examine the strategies for managing investment risks in period of economic crises.
  2. To examine the strategies adopted by First bank plc for managing investment risks in period of economic crises
  3. To determine the investment risks that is likely during economic crisis in the banking sector.

1.4       RESEARCH QUESTIONS

  1. What are the strategies for managing investment risks in period of economic crises?
  2. What are the strategies adopted by First bank plc for managing investment risks in period of economic crises?
  3. What are the investment risks that is likely during economic crisis in the banking sector?

1.5       HYPOTHESIS

HO: There is no significant relationship between investment risks and economic recession in the banking sector in Nigeria

1.6       SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

  1. The outcome of this study will offer a useful guide for business and operational managers with particular reference to the banking sector. It will reveal to the business stakeholders the strategies for managing investment risks in period of economic crises.
  2. This research will be a contribution to the body of literature in the area of strategies for managing investment risks in period of economic crises, thereby constituting the empirical literature for future research in the subject area.

 

1.7       SCOPE/LIMITATIONS OF THE STUDY

This study is limited to the employee of First Bank Nigeria Plc. It will also covers the bank’s strategies for managing investment risks in period of economic crises.

 

 

 

REFERENCES

Kolapo T. F., Ayeni R. K, & Oke M. O.(2012). Credit Risk and Commercial Banks’ Performance in Nigeria: A Panel Model Approach. Australian Journal of Business and Management Research. Vol. 2 No. 02 pp 31-38

Van der Stede, W. (2009), Enterprise Governance, Financial Management, February, pp. 38-40.

Woods, M. Kajüter, P. and Linsley, P. (2008), International risk management, CIMA publishing, London.

Calandro J. and Lane S. (2006), Insights from the balanced scorecard – An introduction to the enterprise risk scorecard, Measuring Business Excellence, Vol. 10 No. 3, pp. 31-40.

Joel, B. ( 2009 ) “Risk Management in Banking” Second Edition

 


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Paper Information

Format:ms word
Chapter:1-5
Pages:59
Attribute: Data Analysis
Price:₦3,000
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