risk management as a strategy for profit maximization

TABLE OF CONTENT Preliminary page Title page Approval page Dedication Acknowledgement Abstract Table of content CHAPTER ONE 1.0 Introduction-------------------------------- --1 1.1 Background of the study------------------- --4 1.2 Statement of the problem--------------------5 1.3 Objective of the study------------------------5 1.4 Research Question---------------------------6 1.5 Statement of hypothesis---------------------7 1.6 Significance of the study----------------------7 1.7 Scope of the study----------------------------8 1.8 Limitation of the study------------------------9 1.9 Definition of terms----------------------------10 CHAPTER TWO 2.0 Literature review------------------------------11 2.1 Introduction-----------------------------------11 CHAPTER THREE 3.0 Research design and methodology------------ 29 3.1 Introduction----------------------------------- 29 3.2 Research design------------------------------- 30 3.3 Source/methodology of data collection-------- 31 3.4 Population and sample size-------------------- 31 3.5 Sample technique ------------------------------32 3.6 Validity and reliability of measuring instrument33 3.7 Method of data analysis------------------------33 CHAPTER FOUR 4.0 Presentation and analysis of datA 4.1 Introduction------------------------------------ 34 4.2 Presentation of data----------------------------34 4.3 Analysis of data-------------------------------- 34 4.4 Test of hypothesis ----------------------------- 41 4.5 Interpretation of result-------------------------41 CHAPTER FIVE 5.0 Summary, conclusion and Recommendation---42 5.1 Introduction------------------------------------ 42 5.2 Summary of findings------------------------- --42 5.3 Conclusion--------------------------------------46 5.4 Recommendations------------------------------47 References------------------------------------------48 Appendix--------------------------------------------49 CHAPTER ONE 1.0 Introduction Banks are germane to economic development through the financial services they provide. Their intermediation role can be said to be a catalyst for economic growth. The efficient and effective performance of the banking industry over time is an index of financial stability in any nation. The extent to which a bank extends credit to the public for productive activities accelerates the pace of a nation’s economic growth and its long-term sustainability. The credit function of banks enhances the ability of investors to exploit desired profitable ventures. Credit creation is the main income generating activity of banks (Kargi, 2011). However, it exposes the banks to credit risk. The Basel Committee on Banking Supervision (2001) defined credit risk as the possibility of losing the outstanding loan partially or totally, due to credit events (default risk). Credit risk is an internal determinant of bank performance. The higher the exposure of a bank to credit risk, the higher the tendency of the banks to experience financial crisis and vice-versa. Among other risks faced by banks, credit risk plays an important role on banks’ profitability since a large chunk of banks’ revenue accrues from loans from which interest is derived. However, interest rate risk is directly linked to credit risk implying that high or increment in interest rate increases the chances of loan default. Risk and interest rate risk are intrinsically related to each other and not separable (Drehman, Sorensen, and Stringa, 2008).Increasing amount of non-performing loans in the credit portfolio is inimical to banks in achieving their objectives. Non-performing loan is the percentage of loan values that are not serviced for three months and above (Ahmad and Ariff, 2007). Due to the increasing spate of non-performing loans, the Basel II Accord emphasized on credit risk management practices. Compliance with the Accord means a sound approach to tackling credit risk has been taken and this ultimately improves bank performance. Through the effective management of credit risk exposure, banks not only support the viability and profitability of their own business, they also contribute to systemic stability and to an efficient allocation of capital in the economy (Psillaki, Tsolas, and Margaritis, 2010). The Nigerian banking industry has been strained by the deteriorating quality of its credit 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. According to Ahmad and Ariff (2007), most banks in economies such as Thailand, Indonesia, Malaysia, Japan and Mexico experienced high non-performing loans and significant increase in credit risk during financial and banking crises, which resulted in the closing down of several banks in Indonesia and Thailand. BACKGROUND TO THE STUDY The banking industry has achieved great prominence in the Nigerian economic environment and it influence play predominant role in granting credit facilities. The probability of incurring losses resulting from non-payment of loans or other forms of credit by debtors known as credit risks are mostly encountered in the financial sector particularly by institutions such as banks. The biggest credit risk facing banking and financial intermediaries is the risk of customers or counter party default. During the 1990s, as the number of players in banking sector increased substantially in the Nigerian economy and banks witnessed rising non-performing credit portfolios. This significantly contributed to financial distress in the banking sector. Also identified was the existence of predatory debtor in the banking system whose modus operandi involve the abandonment of their debt obligations in some banks only to contract new debts in other banks. Credit creation is the main income generating activity for the banks. But this activity involves huge risks to both the lender and the borrower. The risk of a trading partner not fulfilling his or her obligation as per the contract on due date or anytime thereafter can greatly jeopardize the smooth functioning of bank’s business. On the other hand, a bank with high credit risk has high bankruptcy risk that puts the depositors in jeopardy. In a bid to survive and maintain adequate profit level in this highly competitive environment, banks have tended to take excessive risks. But then the increasing tendency for greater risk taking has resulted in insolvency and failure of a large number of the banks. The major cause of serious banking problems continues to be directly related to low credit standards for borrowers and counterparties, poor portfolio management, and lack of attention to changes in economic or other circumstances that can lead to deterioration in the credit standing of bank’s counter parties. And it is clear that banks use high leverage to generate an acceptable level of profit. Credit risk management comes to maximize a bank’s risk adjusted rate of return by maintaining credit risk exposure within acceptable limit in order to provide a framework of the understanding the impact of credit risk management on banks profitability. The excessively high level of non-performing loans in the banks can also be attributed to poor corporate governance practices, lax credit administration processes and the absence or non- adherence to credit risk management practices. The question is what is the impact of credit risk management on the profitability of Nigerian banks? How does Loan and advances affect banks profitability? What is the relationship between non-performing loans and profitability in Nigerian banks? The study considers the extent of relationship that exists between the core variables constituting Nigerian Bank default risk and the profitability. It therefore seek to examine the impact of credit risk on the profitability of Nigerian banking system and identifies the relationships between the non-performing loans and banks profitability and evaluate the effect of loan and advance on banks profitability on Nigerian banks. To achieve the study’s objectives it is postulated that there is no significant relationship between non-performing loan and banks profitability while loan and advances does not have a significant influence on banks profitability. The second section of the paper provides an overview of related literature and the third section presents an exposition of the methodology used in the study. The fourth section provides the results and its discussion. The last section provides a conclusion and recommendations. 1.2 STATEMENT OF THE PROBLEM The use of risk management as a strategy to maximizing profit in banking industries has created high rate of opportunity in the society which could result to serious increase for the company or organization. 1.3 OBJECTIVE OF THE STUDY The objective of the study are to determine: 1. The aim of this paper is to assess the impact of credit risk on the performance of Nigerian banks over a period of years. 2. How credit risk affects banks’ profitability. 3. How risk management strategy increase profit in banking. 4. To know risk management benefits. 5. How to tackle the effect of credit risk in order to enhance the quality of banks’ assets. 1.4 RESEARCH QUESTION 1. What is risk? 2. What is risk management? 3. What is management? 4. What is banking/ bank? 5. Who is a banker? 6. How does risk influence in banking industry profit? 7. How does risk management strategy help maximize or increase bank profit? 1.5 STATEMENT OF HYPOTHESIS Hypothesis one H0! The bank does not have a well risk management structure H1! The bank has a well risk management structure Hypothesis two H0! The staff does not have the skills and knowledge on risk management H1! The staff has the skills and knowledge on risk management 1.6 SIGNICANCE OF THE STUDY When the study is concluded, the entire public will find this study useful by knowing the impact or the effect of risk management in banking industry and its operation. Future researchers who may need secondary data for other research work in related topics will find this research work useful. This is because a perusal through the finding and recommendation will reveal that risk management has a huge impact/effect in the banking system. This research work will also be of immense help to bank staff and their managers. That may be interested to know how lack of effective use of risk management can lead to bank distress liquidation folding etc. 1.7 SCOPE OF STUDY This research work tends or aimed at examine the effective of risk management strategy as it maximize profit. This study tries to covey the way\ways or the important role risk management plays in bank. Therefore the researcher thought it is wise to write on risk management as a strategy for maximizing profit in every aspect of bank focusing on all access bank Nig. PLC as a case study. 1.8 LIMITATION OF THE STUDY Some problems were encountered during this research\ project work such as: 1. TIME CONTRAINT; The researcher has no sufficient time to frequent the area of study due to compiled academic works facing him. he also has limited time in fixing the facts collected during the research work. 2. INFORMATION CONSTRAINTS The research encountered high compliance from the case study (access bank Nig PLC) due to secrecy of some information. 3. FINANCIAL CONSTRAINT The researcher has problem financing this work. This was due to the fact that during this work, there was drastic increase in the cost of living, transport, printing and binding of project. However, I thank God for making me (researcher) to finish the work and present it fairly. 4. Another problem the researcher has was getting the recent three –five financial statements (annual report) of the company to aid this work. 1.9 DEFINITION OF TERMS A. Bank: Bank is a financial establishment that invest money deposited by customers , pays it out when required, make loans at interest and exchange currency. B. Banking: the business conducted or service offered by a bank. C. Risk is defined as the probability of an event and its consequences. Risk management is the practice of using processes, methods and tools for managing these risks. D. E. Record Keeping: Systematic procedure by which the records of an organization are created, captured, maintained, and disposed of. CHAPTER TWO 2.0 LITERATURE REVIEW This chapter deals with the review of books, article and hand bills, and financial statement written by the organization (access bank). It will enable the researcher to know what they have written, what is left to be written in order to improve the work. A total of twenty commercial banks operate presently in Nigeria, out of which cluster sample of five was drawn. The banks in no particular order include First Bank Plc., United Bank for Africa Plc., Guaranty Trust Bank Plc., Zenith Bank Plc., and Access Bank Plc. The basis for the selection rests on the fact that these banks have been rated as the topmost five Nigerian banks by Fitch rating and Bankers’ magazine as at January 2012 and they account for over fifty percent of deposit liabilities in the Nigerian banking sector. 2.1 INTRODUCTION A bank exists not only to accept deposits but also to grant credit facilities, therefore inevitably exposed to credit risk. Credit risk is by far the most significant risk faced by banks and the success of their business depends on accurate measurement and efficient management of this risk to a greater extent than any other risks (Gieseche, 2004). According to Chen and Pan (2012), credit risk is the degree of value fluctuations in debt instruments and derivatives due to changes in the underlying credit quality of borrowers and counterparties. Coyle (2000) defines credit risk as losses from the refusal or inability of credit customers to pay what is owed in full and on time. Credit risk is the exposure faced by banks when a borrower (customer) defaults in honouring debt obligations on due date or at maturity. This risk interchangeably called ‘counterparty risk’ is capable of putting the bank in distress if not adequately managed. Credit risk management maximizes bank’s risk adjusted rate of return by maintaining credit risk exposure within acceptable limit in order to provide framework for understanding the impact of credit risk management on banks’ profitability (Kargi, 2011). Demirguc-Kunt and Huzinga (1999) opined that credit risk management is in two-fold which includes, the realization that after losses have occurred, the losses becomes unbearable and the developments in the field of financing commercial paper, securitization, and other non-bank competition which pushed banks to find viable loan borrowers. The main source of credit risk include, limited institutional capacity, inappropriate credit policies, volatile interest rates, poor management, inappropriate laws, low capital and liquidity levels, direct lending, massive licensing of banks, poor loan underwriting, laxity in credit assessment, poor lending practices, government interference and inadequate supervision by the central bank (Kithinji, 2010).An increase in bank credit risk gradually leads to liquidity and solvency problems. Credit risk may increase if the bank lends to borrowers it does not have adequate knowledge about.\ 2.2 CREDIT RISK MANAGEMENT STRATEGIES The credit risk management strategies are measures employed by banks to avoid or minimize the adverse effect of credit risk. A sound credit risk management framework is crucial for banks so as to enhance profitability guarantee survival. According to Lindergren (1987), the key principles in credit risk management process are sequenced as follows; establishment of a clear structure, allocation of responsibility, processes have to be prioritized and disciplined, responsibilities should be clearly communicated and accountability assigned. The strategies for hedging credit risk include but not limited to these; i. Credit Derivatives: This provides banks with an approach which does not require them to adjust their loan portfolio. Credit derivatives provide banks with a new source of fee income and offer banks the opportunity to reduce their regulatory capital (Shao and Yeager, 2007). The commonest type of credit derivative is credit default swap whereby a seller agrees to shift the credit risk of a loan to the protection buyer. Frank Partnoy and David Skeel in Financial Times of 17 July, 2006 said that “credit derivatives encourage banks to lend more than they would, at lower rates, to riskier borrowers”. Recent innovations in credit derivatives markets have improved lenders’ abilities to transfer credit risk to other institutions while maintaining relationship with borrowers (Marsh, 2008). ii. Credit Securitization: It is the transfer of credit risk to a factor or insurance firm and this relieves the bank from monitoring the borrower and fear of the hazardous effect of classified assets. This approach insures the lending activity of banks. The growing popularity of credit risk securitization can be put down to the fact that banks typically use the instrument of securitization to diversify concentrated credit risk exposures and to explore an alternative source of funding by realizing regulatory arbitrage and liquidity improvements when selling securitization transactions (Michalak and Uhde,2009). A cash collateralized loan obligation is a form of securitization in which assets (bank loans) are removed from a bank’s balance sheet and packaged (tranched) into marketable securities that are sold on to investors via a special purpose vehicle (SPV) (Marsh,2008). iii. Compliance to Basel Accord: The Basel Accord are international principles and regulations guiding the operations of banks to ensure soundness and stability. The Accord was introduced in 1988 in Switzerland. Compliance with the Accord means being able to identify, generate, track and report on risk-related data in an integrated manner, with full auditability and transparency and creates the opportunity to improve the risk management processes of banks. The New Basel Capital Accord places explicitly the onus on banks to adopt sound internal credit risk management practices to assess their capital adequacy requirements (Chen and Pan,2012). iv. Adoption of a sound internal lending policy: The lending policy guides banks in disbursing loans to customers. Strict adherence to the lending policy is by far the cheapest and easiest method of credit risk management. The lending policy should be in line with the overall bank strategy and the factors considered in designing a lending policy should include; the existing credit policy, industry norms, general economic conditions of the country and the prevailing economic climate (Kithinji,2010). v. Credit Bureau: This is an institution which compiles information and sells this information to banks as regards the lending profile of a borrower. The bureau awards credit score called statistical odd to the borrower which makes it easy for banks to make instantaneous lending decision. Example of a credit bureau is the Credit Risk Management System (CRMS) of the Central Bank of Nigeria (CBN). 2.3 MANAGEMENT OF RISKS IN BANKING The bank would avoid credit risk by choosing assets with very low default risk but low return, but the bank profits from taking risk. Credit risk rises if a bank has many medium to low quality loans on its books, but the return will be higher. So banks will opt for a portfolio of assets with varying degrees of risk, always taking into account that a higher default risk is accompanied by higher expected return. Since much of the default risk arises from moral hazard and information problems, banks must monitor their borrowers to increase their return from the loan portfolio. Good credit risk management has always been a key component to the success of the bank, even as banks move into other areas. However, as will become apparent in Chapter 6,the cause of the majority of bank failures can be traced back to weak loan books. For example, Franklin National Bank announced large losses on foreign exchange dealings but it also had many unsound loans. Likewise many of the ‘‘thrift’’ and commercial bank failures in the USA during the 1980s were partly caused by a mismatch in terms between assets and liabilities, and problem loans. In Japan, it was the failure of mortgage banks in 1995 that signaled major problems with the balance sheets of virtually all banks. Liquidity or funding risk. These terms are really synonyms – the risk of insufficient liquidity for normal operating requirements, that is, the ability of the bank to meet its liabilities when they fall due. A shortage of liquid assets is often the source of the problems, because the bank is unable to raise funds in the retail or wholesale markets. Funding risk usually refers to a bank’s in ability to fund its day-to-day operations. As was discussed in Chapter 1, liquidity is an important service offered by a bank, and one of the services that distinguishes banks from other financial firms. Customers place their deposits with a bank, confident they can withdraw the deposit when they wish, even if it is a term deposit and they want to withdraw their funds before the term is up. 2.3 Approaches to the Management of Financial Risks Though risk management was always central to the profitability of banks, its focus has changed over time. In the 1960s, the emphasis was on the efficient employment of funds for liabilities management. In the 1970s, with the onset of inflation in many western countries and volatile interest rates, the focus shifted to the management of interest rate risk and liquidity risk, with a bank’s credit risk usually managed by a separate department or division. Asset–liability management (ALM) is the proactive management of both sides of the balance sheet, with a special emphasis on the management of interest rate and liquidity risks. In the 1980s, risk management expanded to include the bank’s off-balance sheet operations, and the risks inherent therein. In the new century, managers are answerable notonly to shareholders but to national and international regulators. The emphasis is on the use of models to produce reliable risk measures to direct capital to the activities that offer the best risk/return combination. Scenario and stress tests are employed to complement the models. In this section, the traditional ALM function is reviewed but it also explores how new instruments have changed the risk management organizational structure within banks, to accommodate all the risks a modern bank incurs. In particular, it should be emphasized that while traditional risk management focused on a bank’s banking book (that is, on-balance sheet assets and liabilities), modern risk management has been extended to include the trading book, which consists mainly of off-balance sheet financial instruments. The financial instruments of a bank’s trading book are taken on either with a view to profiting from arbitrage, speculation or for the purposes of hedging. Financial instruments may also be used to execute a trade with a customer. The bank and trading books can be affected differently for a given change, say, in interest rates. A rise in interest rates may cause a reduction in the market value of off-balance sheet items, but a gain (in terms of economic value) on the banking book. Also, while the market value gain/loss on the trading book normally has an immediate effect on profits and capital, the effect on the banking book is likely to be realized over time. Interest Rate Risk and Asset–Liability , the ALM group within a bank has been concerned with control of interstate risk on the balance sheet. For some banks it may be equally or even more important to manage interest rate risk arising from off-balance sheet business, but it is instructive to look at the traditional methods and progress to the relatively new procedures. To provide an example of the complexities of interest rate risk management, consider a highly implied case where a bank, newly licensed by the relevant regulatory authority, commences operations as follows. The loan has a maturity of six months, when all interest and principal is payable (a’ bullet’’ loan). It will be priced at the current market rate of interest, 7%, plus a spread of 3%. So the annual loan rate is 10% on 1 January 2000. The loan is assumed to be rolled over every six months at whatever the new market rate is, with an unchanged risk premium of 3%.3. A customer wishes to purchase the deposit product, a certificate of deposit (CD) on1 January. The market rate is 7%, and because of highly competitive market conditions it is this rate which is paid on the CD. The bank has to decide what the maturity of the CD is going to be and once the maturity is set, the bank is committed to rolling over the CD at the same maturity. 2.4 Types of Risk Management Risk Management deals with the identification, assessment and various strategies that help mitigate the adverse effects of risk on the organization. Management uses risk management as a strategic tool to mitigate the loss of property and increase the success chance of the organization. There are various kinds of risk and the risk management deals with their timely identification, assessment and proper handling. The types of risk management differ on the basis of the nature of operations of a particular organization and other factors like its overall goals and performance. All these risk management processes play a significant role behind the growth of an organization in the long run. Commercial enterprises apply various forms of risk management procedures to handle different risks because they face a variety of risks while carrying out their business operations. Effective handling of risk ensures the successful growth of an organization. Various types of risk management can be categorized as follows: Enterprise Risk Management It is a strategic framework that checks the potential risks that have adverse impacts over the enterprise. These risks could be in terms of risk related to resources , product and services or the market environment in which the enterprise operates. Enterprises develop risk management capabilities to deal with these risks and a proper action plan. Enterprises must note down all the possible risks that may occur and prepare a set of action plans depending on the nature of risk. Operational Risk Management Operational risks are present in every enterprises.These risks arise due to the execution of the business functions of the enterprises. Enterprises need to assess these risks and prepare action plans to meet the impact of risk. At the primary level, operational risk management deals with technical failures and human errors like: • Mistakes in execution • System failures • Policy violations • Legal infringements • Rule breaches • Indirect and direct additional risk taking. Financial Risk Management The process of financial risk management can be defined as minimizing exposure of a firm to market risk and credit risk using various financial instruments. Financial risk managers also deal with other risks related to foreign exchange, liquidity, inflation, non-payment of clients and increased rate of interest. These risks affect the financial position of the enterprise. Market Risk Management Enterprises need to understand the risks present in the market , inherent to the industry or arising out of competition. Enterprise need to properly assess it and develop their capabilities . It Deals with different types of market risks, such as interest rate risk, equity risk, commodity risk, and currency risk. Credit Risk Management Managing credit risk is one of the fundamental work of the financial institution. Credit portfolio management is largely becoming essential for the enterprise to keep track of risk.It Deals with the risk related to the probability of nonpayment from the debtors. Quantitative Risk Management In quantitative risk management, an effort is carried out to numerically ascertain the possibilities of the different adverse financial circumstances to handle the degree of loss that might occur from those circumstances. Commodity Risk Management It Handles different types of commodity risks, such as price risk, political risk, quantity risk and cost risk. Bank Risk Management It Deals with the handling of different types of risks faced by the banks, for example, market risk, credit risk, liquidity risk, legal risk, operational risk and reputational risk. Non-profit Risk Management This is a process where risk management companies offer risk management services on a non-profit seeking basis. Currency Risk Managemen Deals with changes in currency prices. Project Risk Management Deals with particular risks associated with the undertaking of a project. Integrated Risk Management Integrated risk management refers to integrating risk data into the strategic decision making of a company and taking decisions, which take into account the set risk tolerance degrees of a department. In other words, it is the supervision of market, credit, and liquidity risk at the same time or on a simultaneous basis. Technology Risk Management It is the process of managing the risks associated with implementation of new technology. Software Risk Management Deals with different types of risks associated with implementation of new softwares. IT Risk Management: It is a part of enterprise risk management as most modern enterprises largely depend on the information technologies and there is certain inherent risks associated with the technologies. Most modern enterprises need to face it and prepare plans to deal with these risks 2.5 Risk Management Enterprise Risk • Credit Risk • Market Risk • Operational Risk • Regulatory Compliance • RMA Multimedia Enterprise Risk Enterprise risk management (ERM) is a framework to reduce earnings volatility through a robust risk governance structure and strong risk culture, supported by sound risk management capabilities. It is the organization’s enterprise risk competence—the ability to understand, control, and articulate the nature and level of risks taken in pursuit of business strategies—coupled with accountability for risks taken and activities engaged in, which contributes to increased confidence shown by stakeholders. Credit Risk In the past, managing the credit portfolio was considered good risk management. But in today's broader, more complex environment, best-practice institutions understand that they need to measure and manage risk across the entire enterprise. We recognize that managing credit risk is essential to enterprise-wide risk management, so we offer products and services to institutions and individuals involved in retail, commercial, and corporate credit risk. RMA is the premier provider of commercial credit education and information. Market Risk RMA serves market risk practitioners at both the larger-institution and smaller-institution levels. For larger institutions—where market risk management and its related technologies are well known and mature—RMA provides peer sharing and professional development opportunities through round tables in North America and Europe. RMA also undertakes surveys, benchmarking studies, and best practice papers. Operational Risk Operational risks exist in every financial organization, regardless of its size, in any number of forms including hurricanes, blackouts, computer hacking, and organized fraud. Managing those risks—however big or small—is critical to an organization’s success. Regulatory Affairs The Regulatory Bulletin, RMA's "member only" resource, which is divided into five parts to assist risk managers in keeping up to date with the increasingly complex regulatory environment facing member institutions in the United States. 2.6. Seven steps to effective risk management * Many enterprises lack consistency when it comes to applying risk management When your organization talks about risk management, what does it mean? According to Gartner, many enterprises are inconsistent in the use and application of the term. So it's no surprise that risk management often ends up siloed into separate functional areas such as business continuity, security, management and privacy. Gartner’s recent report, "A Risk Hierarchy for Enterprise and IT Risk Managers," emphasizes the need for a holistic view of risk. "An enterprise that wishes to better understand and manage the risks to which it is exposed should begin with enterprise-specific risk definitions and an organizational risk hierarchy to which all risk-related specialists can align," says Paul Proctor, vice president and distinguished analyst at the IT research firm. "Although no single definition will work for all enterprises, it is important to start from a common, overarching framework to eliminate overlap, avoid gaps in coverage and ensure good governance." In order to make risk management more effective in your IT organization, Gartner offers 7 steps: 1. Implement a framework for risk assessment and mapping. 2. Outline the responsibilities of risk managers with their respective domains. 3. Identify and define the risks to which the business is exposed and how to map incidents. 4. Determine the threat level and focus on the risk that have the greatest potential to affect enterprise performance. 5. Establish levels of controls for processes commensurate with the perceived threat. 6. Record and retain risk incident and near-miss information. 7. Conduct periodic risk assessments to determine changes in your company’s risk profile and assess performance. 2.6.0 The risk management process Businesses face many risks, therefore risk management should be a central part of any business' strategic management. Risk management helps you to identify and address the risks facing your business and in doing so increase the likelihood of successfully achieving your businesses objectives. A risk management process involves: • methodically identifying the risks surrounding your business activities • assessing the likelihood of an event occurring • understanding how to respond to these events • putting systems in place to deal with the consequences • monitoring the effectiveness of your risk management approaches and controls As a result, the process of risk management: • improves decision-making, planning and prioritisation • helps you allocate capital and resources more efficiently • allows you to anticipate what may go wrong, minimising the amount of firefighting you have to do or, in a worst-case scenario, preventing a disaster or serious financial loss • significantly improves the probability that you will deliver your business plan on time and to budget Risk management becomes even more important if your business decides to try something new, for example launch a new product or enter new markets. Competitors following you into these markets, or breakthroughs in technology which make your product redundant, are two risks you may want to consider in cases such as these. 2.6.1 The types of risk your business faces The main categories of risk to consider are: • strategic, for example a competitor coming on to the market • compliance, for example the introduction of new health and safety legislation • financial, for example non-payment by a customer or increased interest charges on a business loan • operational, for example the breakdown or theft of key equipment These categories are not rigid and some parts of your business may fall into more than one category. The risks attached to data protection, for example, could be considered when reviewing your operations or your business' compliance. Other risks include: • environmental risks, including natural disasters • employee risk management, such as maintaining sufficient staff numbers and cover, employee safety and up-to-date skills • political and economic instability in any foreign markets you export goods to • health and safety risks 2.6.2 Strategic and compliance risks Strategic risks are those risks associated with operating in a particular industry. They include risks arising from: • merger and acquisition activity • changes among customers or in demand • industry changes • research and development For example you might consider the strategic risks of the possibility of a US company buying one of your Canadian competitors. This may give the US company a distribution arm in Canada. You may want to consider: • whether there are any US companies which have the cash/share price to do this • whether there are any Canadian competitors who could be a takeover target, perhaps because of financial difficulties • whether the US company would lower prices or invest more in research and development Where there's a strong possibility of this happening, you should prepare some sort of response. Compliance risk Compliance risks are those associated with the need to comply with laws and regulations. They also apply to the need to act in a manner which investors and customers expect, for example, by ensuring proper corporate governance. You may need to consider whether employment or health and safety legislation could add to your overheads or force changes in your established ways of working. You may also want to consider legislative risks to your business. You should ask yourself whether the products or services you offer could be made less marketable by legislation or taxation – as has happened with tobacco and asbestos products. For example, concerns about the increase in obesity may prompt tougher food labelling regulations, which may push up costs or reduce the appeal of certain types of food. 2.6.3 Financial and operational risks Financial risks are associated with the financial structure of your business, the transactions your business makes and the financial systems you already have in place. Identifying financial risk involves examining your daily financial operations, especially cash flow. If your business is too dependent on a single customer and they are unable to pay you, this could have serious implications for your business' viability. You might examine: • the way you extend credit to new customers • who owes you money • the steps you can take to recover it • insurance that can cover large or doubtful debts Financial risk should take into account external factors such as interest rates and foreign exchange rates. Rate changes will affect your debt repayments and the competitiveness of your goods and services compared with those produced abroad. Operational risks Operational risks are associated with your business' operational and administrative procedures. These include: • recruitment • supply chain • accounting controls • IT systems • regulations • board composition You should examine these operations in turn, prioritise the risks and make provisions for such a risk happening. For example, if you are heavily reliant on one supplier for a key component you should consider what could happen if that supplier went out of business and source other suppliers to help you minimise the risk. IT risk and data protection are increasingly important to business. If hackers break into your IT systems, they could steal valuable data and even money from your bank account which at best would be embarrassing and at worst could put you out of business. A secure IT system employing encryption will safeguard commercial and customer information. 2.6.4 How to evaluate risks Risk evaluation allows you to determine the significance of risks to the business and decide to accept the specific risk or take action to prevent or minimise it. To evaluate risks, it is worthwhile ranking these risks once you have identified them. This can be done by considering the consequence and probability of each risk. Many businesses find that assessing consequence and probability as high, medium or low is adequate for their needs. These can then be compared to your business plan - to determine which risks may affect your objectives - and evaluated in the light of legal requirements, costs and investor concerns. In some cases, the cost of mitigating a potential risk may be so high that doing nothing makes more business sense. There are some tools you can use to help evaluate risks. You can plot on a risk map the significance and likelihood of the risk occurring. Each risk is rated on a scale of one to ten. If a risk is rated ten this means it is of major importance to the company. One is the least significant. The map allows you to visualise risks in relation to each other, gauge their extent and plan what type of controls should be implemented to mitigate the risks. Prioritising risks, however you do this, allows you to direct time and money toward the most important risks. You can put systems and controls in place to deal with the consequences of an event. This could involve defining a decision process and escalation procedures that your company would follow if an event occurred. 2.7 Use preventative measures for business continuity Risk management involves putting processes, methods and tools in place to deal with the consequences of events you have identified as significant threats for your business. This could be something as simple as setting aside financial reserves to ease cash flow problems if they arise or ensuring effective computer backup and IT support procedures for dealing with a systems failure. Programs which deal with threats identified during risk assessment are often referred to as business continuity plans. These set out what you should do if a certain event happens, for example, if a fire destroys your office. You can't avoid all risk, but business continuity plans can minimise the disruption to your business. Risk assessments will change as your business grows or as a result of internal or external changes. This means that the processes you have put in place to manage your business risks should be regularly reviewed. Such reviews will identify improvements to the processes and equally they can indicate when a process is no longer necessary. 2.7.0 How to manage risks There are four ways of dealing with, or managing, each risk that you have identified. You can: • accept it • transfer it • reduce it • eliminate it For example, you may decide to accept a risk because the cost of eliminating it completely is too high. You might decide to transfer the risk, which is typically done with insurance. Or you may be able to reduce the risk by introducing new safety measures or eliminate it completely by changing the way you produce your product. When you have evaluated and agreed on the actions and procedures to reduce the risk, these measures need to be put in place. Risk management is not a one-off exercise. Continuous monitoring and reviewing are crucial for the success of your risk management approach. Such monitoring ensures that risks have been correctly identified and assessed and appropriate controls put in place. It is also a way to learn from experience and make improvements to your risk management approach. All of this can be formalised in a risk management policy, setting out your business' approach to and appetite for risk and its approach to risk management. Risk management will be even more effective if you clearly assign responsibility for it to chosen employees. It is also a good idea to get commitment to risk management at the board level. Good risk management can improve the quality and returns of your business. Choose the right insurance to protect against losses Insurance will not reduce your business' risks but you can use it as a financial tool to protect against losses associated with some risks. This means that in the event of a loss you will have some financial compensation. This can be crucial for your business' survival in the event of, say, a fire which destroys a factory. Some costs are uninsurable, such as the damage to a company's reputation. On the other hand, in some areas insurance is mandatory. Insurance companies increasingly want evidence that risk is being managed. Before they will provide cover, they want evidence of the effective operation of processes in place to minimise the likelihood of a claim. You can ask your insurance adviser for advice on appropriate processes. Insurance products You can use a business interruption policy, for example, to insure against loss of profit and higher overheads resulting from, say, damaged machinery. You may also want to consider: • products liability insurance • key man insurance • group life assurance Liability insurance - public and products liability insurance - is designed to pay any compensation and legal costs that arise from negligence or breach of duty. Key man insurance is designed to cover you for the financial costs of losing key personnel. Group life assurance is provided by employers as part of a benefits package and pays out a lump sum to an employee's family should the employee die. Original document, Managing risk, © Crown copyright 2009 Source: Business Link UK (now GOV.UK/Business) Adapted for Québec by Info entrepreneurs Our information is provided free of charge and is intended to be helpful to a large range of UK-based (gov.uk/business) and Québec-based (infoentrepreneurs.org) businesses. Because of its general nature the information cannot be taken as comprehensive and should never be used as a substitute for legal or professional advice. We cannot guarantee that the information applies to the individual circumstances of your business. Despite our best efforts it is possible that some information may be out of date. As a result: • The websites operators cannot take any responsibility for the consequences of errors or omissions. • You should always follow the links to more detailed information from the relevant government department or agency. • Any reliance you place on our information or linked to on other websites will be at your own risk. You should consider seeking the advice of independent advisors, and should always check your decisions against your normal business methods and best practice in your field of business. • The websites operators, their agents and employees, are not liable for any losses or damages arising from your use of our websites, other than in respect of death or personal injury caused by their negligence or in respect of fraud 2.7.1 Sharpening strategic risk management Strategic risks can be defined as the uncertainties and untapped opportunities embedded in your strategic intent and how well they are executed. As such, they are key matters for the board and impinge on the whole business, rather than just an isolated unit. Strategic risk management is your organisation’s response to these uncertainties and opportunities. It involves a clear understanding of corporate strategy, the risks in adopting it and the risks in executing it. These risks may be triggered from inside or outside your organisation. Once they are understood, you can develop effective, integrated, strategic risk mitigation. Far from holding back the business, strategic risk management is about augmenting strategic management and getting the full value from your strategy. In a typical instance, a conventional approach to setting and executing strategy might look at sales growth and service delivery. Rarely does it monitor the risks of a shortfall in demand. As Figure 1 outlines, effective strategic risk management is built around a clear understanding of how much risk your business is prepared to take to deliver its objectives, and a timely and reliable evaluation of how much risk it is actually taking. The problem is that risk management can often be run separately from frontline strategic assessments, decision making and monitoring against plans. Boards can thus improve their focus on risk by integrating risk management into their routine strategic evaluation, debate and challenge. Figure 2 sets out the main types of risk a business is likely to face. Financial risks are typically well controlled and are part of the routine focus of board risk discussions, with strong impetus coming from the increased regulatory, accounting and financial audit focus. As financial information is a key element of stakeholder communications, performance measurement and strategic delivery, board risk discussions will devote considerable time to these risks. Operational risks are typically managed from within the business and often focus on health and safety issues where industry regulations and standards require. These internally driven risks may affect your organisation’s ability to deliver on its strategic objectives. Hazard risks often stem from major exogenous factors, which affect the environment in which the organisation operates. A focus on the use of insurance and appropriate contingency planning will help address some of these. However, there is often a danger that as many of these risks cannot be controlled, boards and senior management will not reflect these in their strategic thinking. Confining strategic management to controllable factors will leave your business at risk of failing to address these factors. Strategic risks are typically external or affect the most senior management decisions. As such, they are often missed from many risk registers. Your board has a responsibility to make sure all these types of risks are included in their key strategic discussions. So how are risk management frameworks evolving in the face of these gaps in how risk is managed and the need for greater integration with strategic management? Our conversations with boards highlight three major concerns. First, many executives are worried that the risk frameworks and processes that are currently in place in their organisations are no longer giving them the level of protection they need. Second, boards are seeing rapid increases both in the speed with which risk events take place and the contagion with which they spread across different categories of risk. They are especially concerned about the escalating impact of ‘catastrophic’ risks, which can threaten an organisation’s very existence and even undermine entire industries. The third shift is that boards feel they are spending too much time and money on running their current risk management processes, rather than moving quickly and flexibly to identify and tackle new risks. As a result, some are not convinced that their return on spending on ERM is fully justified by the level of protection they gain from it. PwC recently conducted a qualitative research study into how various multinational organisations have responded to these challenges. The study revealed four key findings: 2.7.2 5 Keys to Manage Credit Risk Effectively Managing commercial credit risk is important to any small business growing its financial strength. Here are a few basic principles that any business owner can use as a foundation for its credit risk management strategy. There's actually a single common theme for all five of the principles I'll discuss below: Act, don't react. If you want to manage risk, then you need to learn how to anticipate risk. Fortunately, with the right risk management tools and a bit of discipline, any small business can achieve this goal. Here are five specific suggestions, including action your small business can take right away. 1. Don't just focus on new customers. It's human nature: We like to think that long-term business relationships are stable, solid, and built on a foundation of trust. The truth, however, is that up to 80 percent of bad debt involves business relationships that are a year or more old. Takeaway: Don't treat credit risk management as a one-time process. Evaluate credit risk for your customers, vendors, and suppliers regularly, and watch for trends in business credit profiles that signal impending trouble. 2. Trust your technology tools. A manual credit-review process might feel more thorough - you can pull in data from multiple reporting sources, mull it over, and make a "big picture" credit decision. Today, however, with so many data sources to choose from, it's more likely that you'll miss or misunderstand critical information. Takeaway: Work with a business information provider that offers a comprehensive, integrated set of risk management tools. You'll save money and time - and manage credit risk far more effectively. 3. Trust your colleagues, too! Some of a credit professional's best allies aren't in the credit department - they're in sales, support, customer service, and even the executive suite. A sales call, for example, might reveal that a customer is downsizing its office, or a business owner might hear through the grapevine that a normally reliable partner is having problems with slow payments. Takeaway: The more eyes and ears you recruit, the more likely you are to get the information you need to evaluate credit risk in a timely manner. 4. Take business fraud seriously. Most small businesses are eager to build relationships with new customers, suppliers, vendors, and business partners. In the process, however, they're more likely to overlook signs that a business relationship is TOO promising. 5. Takeaway: Apply consistent risk management practices to all of your business relationships. When you see a red flag - a murky business history, unusual references, or too-good-to-be-true terms - put on the brakes until you can get the answers you need to evaluate credit risk. 6. Your job is to manage risk - not eliminate it. There's only one way to completely eliminate risk from your business, and that's to close the doors and go home. That's because the more you do to eliminate business risk exposure, the more expensive and time-consuming the process will become. At some point, the costs of eliminating ALL risk exceed the benefits of trying to do so. Takeaway: Put the right tools, technologies, and processes into place to manage your risk in the most cost-effective manner. Once you achieve this, you can be confident that you're striking the right balance between risk and reward. The Advent of Strategic Risk Management Enterprise risk management (“ERM”) and risk management in general can encompass a wide range of risks that face any organization. Some risks may reflect exposures that, although harmful, will not threaten the overall health of an organization or its ability to ultimately meet its business objectives. For example, a temporary data center outage can result in a short-term problem or customer dissatisfaction, but once recovered, the organization can quickly be back on track. Other more significant risk events can be catastrophic, resulting in losses that can not only impair an organization’s ability to meet its objectives, but may also threaten the organization’s survival. The recent credit crisis is an example of this type of risk. These more significant risk exposures have given rise to a focus on “strategic risks” and “strategic risk management.” “Strategic risks” are those risks that are most consequential to the organization’s ability to execute its strategies and achieve its business objectives. These are the risk exposures that can ultimately affect shareholder value or the viability of the organization. “Strategic risk management” then can be defined as “the process of identifying, assessing and managing the risk in the organization’s business strategy—including taking swift action when risk is actually realized.” Strategic risk management is focused on those most consequential and significant risks to shareholder value, an area that merits the time and attention of executive management and the board of directors. Standard & Poor’s included the following attributes for strategic risk management in its 2008 announcement that it would apply enterprise risk analysis to corporate ratings: Management’s view of the most consequential risks the firm faces, their likelihood, and potential effect; The frequency and nature of updating the identification of these top risks; The influence of risk sensitivity on liability management and financial decisions, and The role of risk management in strategic decision making. [2] Clearly the potential impact of strategic risks is significant enough to deserve the attention of the board and its directors. 2.8 The Strategic Risk Assessment Process There are seven basic steps for conducting a strategic risk assessment: 1 Achieve a deep understanding of the strategy of the organization The initial step in the assessment process is to gain a deep understanding of the key business strategies and objectives of the organization. Some organizations have welldeveloped strategic plans and objectives, while others may be much more informal in their articulation and documentation of strategy. In either case, the assessment must develop an overview of the organization’s key strategies and business objectives. This step is critical, because without these key data to focus around, an assessment could result in a long laundry list of potential risks with no way to really prioritize them. This step also establishes a foundation for integrating risk management with the business strategy. In conducting this step, a strategy framework could be useful to provide structure to the activity.a 2 Gather views and data on strategic risks The next step is to gather information and views on the organization’s strategic risks. This can be accomplished through interviews of key executives and directors, surveys, and the analysis of information (e.g., financial reports and investor presentations). This data gathering should also include both internal and external auditors and other personnel who would have views on risks, such as compliance or safety personnel. Information gathered in Step 1 may be helpful to frame discussions or surveys and relate them back to core strategies. This is also an opportunity to ask what these key individuals view as potential emerging risks that should also be considered. 3 Prepare a preliminary strategic risk profile Combine and analyze the data gathered in the first two steps to develop an initial profile of the organization’s strategic risks. The level of detail and type of presentation should be tailored to the culture of the organization. For some organizations, simple lists are adequate, while others may want more detail as part of the profile. At a minimum, the profile should clearly communicate a concise list of the top risks and their potential severity or ranking. Colorcoded reports or “heat-maps” may be useful to ensure clarity of communication of this critical information. 4 Validate and finalize the strategic risk profile The initial strategic risk profile must be validated, refined, and finalized. Depending on how the data gathering was accomplished, this step could involve validation with all or a portion of the key executives and directors. It is critical, however, to gain sufficient validation to prevent major disagreements on the final risk profile. 5 Develop a strategic risk management action plan This step should be undertaken in tandem with Step 4. While significant effort can go into an initial risk assessment and strategic risk profile, the real product of this effort should be an action plan to enhance risk monitoring or management actions related to the strategic risks identified. The ultimate value of this process is helping and enhancing the organization’s ability to manage and monitor its top risks. 6 Communicate the strategic risk profile and strategic risk management action plan Building or enhancing the organization’s risk culture is a communications effort with two primary focuses. The first focus is the communication of the organization’s top risks and the strategic risk management action plan to help build an understanding of the risks and how they are being managed. This helps focus personnel on what those key risks are and potentially how significant they might be. A second focus is the communication of management’s expectations regarding risk to help reinforce the message that the understanding and management of risk is a core competency and expected role of people across the organization. The risk culture is an integral part of the overall corporate culture. The assessment of the corporate culture and risk culture is an initial step in building and nurturing a high performance, high integrity corporate culture. 7 Implement the strategic risk management action plan As noted above, the real value resulting from the risk assessment process comes from the implementation of an action plan for managing and monitoring risk. These steps define a basic, high-level process and allow for a significant amount of tailoring and customization to reflect the maturity and capabilities of the organization. As shown by Figure 1, strategic risk assessment is an ongoing process, not just a one-time event. Reflecting the dynamic nature of risk, these seven steps constitute a circular or closed-loop process that should be ongoing and continual within the organization. 2.8.0 Integrating Strategic Risk Management in Strategy Setting and Performance Measurement Processes The second step for an organization is to integrate strategic risk management into its existing strategy setting and performance measurement processes. As discussed above, there is a clear link between the organization’s strategies and its related strategic risks. Just as strategic risk management is an ongoing process, so is the need to establish an ongoing linkage with the organization’s core processes to set and measure its strategies and performance. This would include integrating risk management into strategic planning and performance measurement systems. Again, the maturity and culture of the organization should dictate how this performed. For some organizations, this may be accomplished through relatively simple processes, such as adding a page or section to their annual business planning process for the business to discuss the risks it sees in achieving its business plan and how it will monitor those risks. For organizations with more developed performance measurement processes, the Kaplan- Norton Strategy Execution Model described in The Execution Premium may be useful. [9] This model describes six stages for strategy execution and provides a useful framework for visualizing where strategic risk management can be embedded into these processes. Stage 1: Develop the strategy This stage includes developing the mission, values, and vision; strategic analysis; and strategy formulation. At this stage, a strategic risk assessment could be included using the Return Driven Strategy framework to articulate and clarify the strategy and the Strategic Risk Management framework to identify the organization’s strategic risks. Stage 2: Translate the strategy This stage includes developing strategy maps, strategic themes, objectives, measures, targets, initiatives, and the strategic plan in the form of strategy maps, balanced scorecards, and strategic expenditures. Here, the strategic risk management framework would be used to develop risk-based objectives and performance measures for balanced scorecards and strategy maps, and for analyzing risks related to strategic expenditures. [10] At this stage, boards may also want to consider developing a risk scorecard that includes key metrics. Stage 3: Align the organization This stage includes aligning business units, support units, employees, and boards of directors. The Strategic Risk Management Alignment Guide and Strategic Framework for GRC (Governance, Risk and Compliance) would be useful for aligning risk and control units toward more effective and efficient risk management and governance, and for linking this alignment with the strategy of the organization. [11] Stage 4: Plan operations This stage includes developing the operating plan, key process improvements, sales planning, resource capacity planning, and budgeting. In this stage, the strategic risk management action plan can be reflected in the operating plan and dashboards, including risk dashboards. One organization we worked with developed a “resources follow risk” philosophy to make certain that resources were appropriately and efficiently allocated. This philosophy focused on ensuring that resources used in risk management are justified economically based on the relative amount of risk and cost-benefit analysis. Stage 5: Monitor and learn This stage includes strategy and operational reviews. “Strategic risk reviews” would be part of the ongoing strategic risk assessment, which reinforces the necessary continual, closed-loop approach for effective strategy risk assessment and strategy execution. Stage 6: Test and adapt This stage includes profitability analysis and emerging strategies. Emerging risks can be considered part of the ongoing strategic risk assessment in this stage. The strategic risk assessment can complement and leverage the strategy execution processes in an organization toward improving risk management and governance. For more information about integrating risk management in the strategy execution model and a discussion of risk scorecards, see “Risk Management and Strategy Execution Systems.” [12] 2.8.1 Final Thoughts: Moving Forward with Strategic Risk Management Management teams and boards must challenge themselves and their organizations to move up the strategic risk management learning curve. Developing strategic risk management processes and capabilities can provide a strong foundation for improving risk management and governance. Boards may want to consider engaging independent advisors to advise and educate themselves on these matters. For organizations that are early in this process, the seven keys to success for improving ERM as described in a 2011 COSO Thought Leadership Paper may be useful, and are applicable in strategic risk management: • 1. Support from the top is a necessity • 2. Build ERM using incremental steps • 3. Focus initially on a small number of top risks • 4. Leverage existing resources • 5. Build on existing risk management activities • 6. Embed ERM into the business fabric of the organization • 7. Provide ongoing ERM updates and continuing education for directors and senior management [13] However the board decides to proceed, their leadership, direction, and overall oversight will be critical to the success of a strategic risk management process. CHAPTER THREE 3.0 RESAERCH DESIGN AND METHODOLOGY This chapter focused on the procedures adopted by the researcher in carrying out the study. It includes; research design, source/methodology of data collection, population and sample size, sample techniques, validity and reliability of measuring instruments and method of data analysis. 3.1 INTRODUCTION The study examines the risk management as a strategy to maximize profit and its operation. The research is centralized on Access bank PLC. Access Bank Plc., commonly known as Access Bank, is a commercial bank in Nigeria. The bank is one of the commercial banks licensed by the Central Bank of Nigeria, the national banking regulator.[3] The bank's headquarters is located in Lagos, Nigeria's commercial capital. Access Bank has in excess of 300 bank branches in Nigeria's major commercial centers. Access Bank is a large financial services provider, with an asset base in excess of US$12.6 billion (NGN:2.02 trillion), as of February 2012. The shareholders' equity in the bank is valued at approximately US$2.33 billion (NGN:373.5 billion). Starting in 2007, Access Bank began an International expansion drive. As of February 2012, it has subsidiaries in the Democratic Republic of the Congo, Ghana, Rwanda, Sierra Leone, The Gambia, United Kingdom, and Zambia. • Democratic Republic of the Congo - Banque Privée du Congo. • The Gambia - Access Bank Gambia • Ghana - Access Bank Ghana • Rwanda - Access Bank Rwanda. • Sierra Leone - Access Bank Sierra Leone • United Kingdom - Access Bank has a head office and one branch. • Zambia - Access Bank Zambia The bank received its license from the Central Bank of Nigeria in 1989, and listed on the Nigerian Stock Exchange in 1998. • 2002: Access Bank was taken over by a core of new management lead by Aigboje Aig-Imoukhuede and Herbert Wigwe. • 2005: Access Bank acquired Marina Bank and Capital Bank (the former Commercial Bank (Crédit Lyonnais Nigeria)) by merger. • 2007: Access Bank established a subsidiary in Banjul, The Gambia. This bank now has a head office and four branches, and the bank has pledged to open another four branches. • 2008: Access Bank acquired 88% of the shares of Omnifinance Bank, which was established in 1996. It also acquired 90% of Banque Privée du Congo, which South African investors had established in 2002. Access Bank acquired 75% of the shares of Bancor SA, in Rwanda. Bancor had been established in 1995 and reorganized in 2001. In September Access Bank opened a subsidiary in Freetown, Sierra Leone, and then in October, the bank opened subsidiaries in Lusaka, Zambia and in London, United Kingdom. • 2009: Finbank (Burundi) joined the Access Bank network • 2011: Access Bank in talks with the Central Bank of Nigeria to acquire Intercontinental Bank Plc. • Further to the approval of the shareholders of both banks, court sanction of the Federal High Court of Nigeria and approval of the Central Bank of Nigeria and the Securities & Exchange Commission, Access Bank Plc (“Access”) and Intercontinental Bank Plc (“Intercontinental Bank”) announce the completion of the recapitalization of Intercontinental Bank and the acquisition of 75% majority interest in Intercontinental Bank by Access Bank Plc. Effective today, Intercontinental Bank (including all its assets, liabilities and undertakings) becomes a subsidiary of Access Bank Plc. • The combined effect of the restoration of Net Asset Value (NAV) to zero by AMCON and N50billion capital injection by Access Bank Plc is that Intercontinental Bank now operates as a well capitalized bank, with shareholders funds of N50billion and Capital Adequacy Ratio (CAR) of 24%, well above the 10% regulatory threshold. • January 2012: Access Bank announced the conclusion of its acquisition of the former Intercontinental Bank, creating an expanded Access Bank, one of the largest four commercial banks in Nigeria with over 5.7 million customers, 309 branches and over 1,600 Automated Teller Machines (ATMs). Access Bank Plc. is the flagship company of the financial conglomerate known as Access Bank Group. The member companies of the group include the following businesses: [10] The stock of the Group trades on the Nigerian Stock Exchange (NSE), under the symbol: ACCESS.[11] • Access Bank Plc. - Nigeria • Omnifinance Bank - Côte d'Ivoire • Banque Privée du Congo - Democratic Republic of the Congo[6] • Access Bank Rwanda - Rwanda • Access Bank Sierra Leone - Sierra Leone • Access Bank Gambia - The Gambia • Access Bank United Kingdom - United Kingdom • Access Bank Zambia - Zambia • Finbank Burundi - Burundi • Access Bank Ghana - Ghana • United Securities Limited - Nigeria • Access Homes & Mortgages Limited - Nigeria • Access Investment & Securities - Nigeria Access Bank Plc has many branches intending to open more within this year (2015). The researcher Access Bank Plc to draw a sample for the investigation into the risk management as a strategy to maximize profit and its application. 3.2 RESEACH DESIGN A description survey types is used in this research work because it is descriptive in nature and attempt to describe, interpret, and explain the risk management as a strategy to maximize profit and its application in Access bank Plc. 3.3 SOURCE /METHODOLOGY OF DATA COLLECTION The questionnaires were distributed by hand and collected immediately from the respondents 3.4 POPULATION AND SAMPLE SIZE The population of this study was made up of all staff selected in the four (4) braches in Imo State. Sample size of 70 staff was used during this research. S/N Branches Population 1 Bank road 40 2 wethdral branch 20 3 Orji branch 30 4 Naze branch Total 19 109 3.5 SAMPLE TECHNIQUES A sample of four (4) branches of Access bank Plc was used, Bank road branch, wethdral branch, Orji branch, and Naze branch with total population of 109 staff. Branches from Access bank plc are represented in this number. S/n Name of branch Population Sample 1 Bank road 40 25 2 Wethdral 20 14 3 Orji 30 21 4 Naze 19 10 Total Total 109 70 3.6 VALIDITY AND RELIABILITY OF MEASURING INSTRUMENT. The information was vetted by the research supervisor and one other lecturer in measurement and evaluation for content validity and reliability. 3.7 METHOD OF DATA ANALYSIS The method of data analysis that was used will be presented in tabular form and analyzised in percentage using F÷N×100÷1 F= means frequency /or number of response N= is the total number of response. CHAPTER FOUR 4.0 PRESENTATION AND ANALYSIS OF DATA 4.1 INTRODUCTION In chapter three, we explained the method of by which the data collected would be analyzed to produce the results on this statement, we collected the required data and with the use of sample percentage as were analyzed based on their subject to the research question. 4.2 DATA ANALYSIS The data collected was carried out with instrument which is the questionnaire. The analysis on the questionnaire was one part in line with the research question they intend to answer. The questionnaire contains 10 items for clear understanding of the result the data are presented in table. Research Question One: What is risk management: Risk management focuses on identifying what could go wrong, evaluating which risks should be dealt with and implementing strategies to deal with those risks. Businesses that have identified the risks will be better prepared and have a more cost-effective way of dealing with them. Research Question Two: Is risk management a strategy to maximize profit? Table 4.1 Analyzing the response to test the hypothesis Option No. of response Percentage Agreed 90 83% Disagreed 10 9% Both 5 5% No answer 4 3% Total 109 100% From the above analysis, 83% agreed that risk management is a strategy for profit maximization, 9% disagreed, 5% said both, while 3% said no answer. RESEARCH QUESTION 3 TABLE 4.2 Is risk a negative influence on the banking system? Option No of response Response in % Agreed 60 55% Disagreed 40 37% Both 9 8% No answer - - Total 109 100% From the above response 55% agreed that risk is a negative influence, which 37% disagreed and 8% said computer is both. RESEARCH QUESTION 4 Does risk management add value to the modern banking system? Table 4.3 Option No of respondent Percentage Agreed 60 55% Disagreed 30 28% Both 10 9% No answer 9 8% Total 109 100% Table 4.3 shows that 55% agreed, that risk management adds value to the modern banking, while 28% disagreed, 9% said both while 8% said no idea. QUESTION 5 Is management strategy of great advantage or less advantage? Table 4.4 Option No of respondent Percentage Agreed 90 83% Disagreed 5 4% Both 2 2% No ideal 12 11% Total 109 100% QUESTION 6 Can risk management be use to grow business opportunity? Option No of respondent Percentage Agreed 85 78% Disagreed 10 9% Both 5 5% No ideal 9 8% Total 109 100% Table 4.5 shows that 75% agreed that risk management can be use to grow business opportunity, while 9% disagreed, 5% said both while 8% said no idea. QUESTION 7 Manual banking (ledger cards) is it more fraudulent than the use of computer? Option No of respondent Percentage Agreed 30 28% Disagreed 70 64% Both 9 8% No idea - - Total 109 100% From the above table 4.6 28% of the staff said that manual banking is less fraudulent than the computer age banking, when 64% said it is more safe to make us of the manual banking than computer age which 8% said both. QUESTION 8 Does management strategy provide more security to customer details. Table 4.7 Option No of respondent Percentage Agreed 70 64% Disagreed 39 36% Both - - No idea - - Total 109 100% Table 4.7 shows that 64% agreed while 36% disagreed with the motion. QUESTION 9 Can the use risk management in banks lead to unemployment in banks? Table 4.8 Option No of respondent Percentage Agreed 60 55% Disagreed 40 37% Both 9 8% No idea - - Total 109 100% 4.4 TESTING OF HYPOTHESIS In the section the hypothesis earlier formulated in chapter one will be tested. Each test enables the research to make inf about the unknown population. HYPOTHESIS ONE H0: Improper checkmating of the risk managers H1: Proper checkmating of the risk managers HYPOTHESIS TWO H0: Poor managerial decision H1: Adequate and good managerial decision HYPOTHESIS THREE H0: Staff lacks interpersonal management skill H1: Good interpersonal management skill. CHAPTER FIVE 5.0 CONCLUSION AND RECOMMENDATIONS The following conclusions are made from the panel data regression analysis of the effect of credit risk on bank performance measured by return on equity. The effect of credit risk on bank performance measured by the Return on Assets of banks is cross-sectional invariant. That is, nature and managerial pattern of individual firms do not determine the impact. This is revealed by the restricted F – test under the fixed effect analysis. Loan and Advances ratio (LA) coefficient exerts most significant positive effect on the profitability across the banking firms. 5.1 RECOMMENDATION Based on our findings, it is recommended that banks in Nigeria should enhance their capacity in credit analysis and loan administration while the regulatory authority should pay more attention to banks’ compliance to relevant provisions of the Bank and other Financial Institutions Act (1999) and prudential guidelines. REFERENCES 1. Agusto and Co., 5th Floor, UBA House, Lagos (accessed from www.agusto.com) 2. Ahmad, N.H. and Ariff, M. (2007).Multi-country Study of Bank Credit Risk Determinants, International Journal of Banking and Finance, 5(1), 135-152. 3. Ahmed, A.S., Takeda, C. and Shawn, T. (1998). Bank Loan Loss Provision: A Reexamination of Capital Management and Signaling Effects, Working Paper, Department of Accounting, Syracuse University, 1-37. 4. Al-Khouri, R. (2011). 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