Effect of financial risk management on the performance of deposit money banks in Lagos State

Abstract

This study examined the effect of Risk Management on Deposit Money Bank in Lagos State. By evaluating the different types of Risks and how it affect banks performance and the relationship that exist between risk and financial performance in the Deposit Money Banks (DMBs) in Nigeria. The study employed both primary and secondary source of data collection. The primary data was obtained through the use of pre-tested structured questionnaire distributed to 300 respondents while the secondary data was extracted from the audited financial statement of the 10 sampled Deposit Money Banks in Lagos State over a period of 6 years (2012-2017). The data collected were analysed using Descriptive Statistic such as Pearson product-moment coefficient correlation, Hausman test, and linear regression analysis technique. The result revealed that credit risk is statistically significant at (r=0.038)(p<0.01%) on Deposit Money Banks (DMB’s) it also shows that liquidity and Market risk are not statistically significant at (r=0.11)(p>0.01%). It also showed the distinctive core and non-core risk that affect the performance of DMB’s in Lagos State. Furthermore the analysis of these responses from the questionnaire observed that all the risk specified in the questionnaire were identified as core risk and they affect the performance of DMB’s in Lagos State. The regression analysis carried out showed that risk management has a significant effect on financial performance proxied by Return on Assets (ROA) and a non-significant effect on Return on Equity (ROE). The study concluded that all risk are core and important to the performance of DMB’s in Lagos State. Recommendations where further made that risk management in DMB’s should be merged with the enterprise Risk Management (ERM), so there can be a joint coordination of all the risk affecting Deposit Money Bank in Lagos State. It was therefore concluded that financial risk management should be one of the vital concerns in the banking industry in order to achieve effective productivity and also improve financial performance.