AN OVERVIEW OF THE RISKS ASSOCIATED WITH BANK LENDING IN THE BANKING SECTOR
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AN OVERVIEW OF THE RISKS ASSOCIATED WITH BANK LENDING IN THE BANKING SECTOR
ABSTRACT
A topic chosen from the financial field is an overview of risk related with bank loading in the banking sector.
The goal of this research is to determine the risk variables and their effects in financial institutions, with a focus on banks.
This research will introduce us to:
1. Determine the extent to which loan risk posed significant issues.
2. Determine the extent to which risk is related with lending in the banking sector.
3. Determine the necessity for effective and efficient risk management in the growth of banks.
4. Determine the importance of good and efficient risk analysis in bank lending.
When utilised in the course of lending, numerous possibilities and end points are acquired. Risk, as we know it, is an activity committed with varying and limitless certainty.
Why did you lend money?
As bankers, we lend to bridge the gap between those with deficits and those with surpluses, but at a profit.
Several factors must be considered, researched, mitigated, and regulated during the loan process, including industry risk, credit risk, pricing risk, microeconomic instability, variation in government policy, globalisation, and so on.
In the first chapter of this study, we will attempt to present the notion of risk and elucidate its core and peripherals.
The second chapter is a literature study in which we will compare previous and present danger data/events as expounded by numerous major authors and authority.
The third chapter discusses how the questionnaires were disseminated, how oral and written interviews were conducted, and how information was gathered.
Chapter four is a theoretical framework; based on the results of the previous three chapters and supported by a literature review of the previous two, we obtain an inmate theory of risk in terms of the best possible method,
technique, criteria, and methodology for risk management, which we now apply in the practical sense to various credit requests made in the banking sector.
Chapter five focuses on the results of applying the theory, the flaws discovered, and the recommended solutions in order to protect bank funds while also not exposing ourselves (credit officers) to professional negligence and incompetence, which can have dire consequences.
1.0 INTRODUCTION TO CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Banking is an adequately called high-risk industry. As a result, risk management in banking is receiving a lot of attention. As banks face huge volumes of non-performing assets, the necessity for such attention on risk management becomes even more pressing.
Rose (1987:54) agrees, noting that while the 1950s focused on asset management techniques and the 1960s and 1970s on liability management, banking in the 1980s was concerned with risk-how to measure risk and control risk for the benefit of banks and their customers. This risk perception remains valid and relevant for bank management in the lending functions.
It is obvious that the subject of “risk” plays a significant role in determining business success and failure, particularly in banking. The conventional approach to appreciating that fact in financial management is frequently linked to the inverse between the plausible business outcomes, a high risk leads to more profit value and vice versa.
In banking, we can extend this logic to indicate that the more a bank obtains and preserves liquidity (lower risk), the less profit it gains (lower returns).
Unfortunately, uncertainty–another component that impacts business outcomes–is not as easily understood as risk–yet we must cope with the decisive dicey and unreasonable subjective possibilities,
what exactly do we mean by the terms “risk” and “uncertainty”? The answers to these questions serve as the foundation for the discussion of the overview, which includes the term’s significance and consequences for bank management.
STATEMENT OF THE PROBLEM
The risks of lending can be numerous and, at times, intractable. However, there exist riskless loans in the sense that they are more than 100% cash collateralized. In any event, the number of risk characteristics can only be properly analysed in the content of specific loans.
As a result, dispelling lending doubts begins with:
1. Identification of risks
2. Recognising and understanding the risk, including its structure and frequency.
3. Allowing a financial analyst to discover in his credit report that a certain loan request may be associated with certain hazards.
4. Allow analysts to identify and provide an indication of their type (risk) and attributes.
5. Identifying and incorporating the risk inherent in the so-called 5os of lending (credit).
6. Finally, I’ve gotten over the hump in CAMEL.
PURPOSE AND OBJECTIVE OF THE STUDY
The research’s goal is to.
1. Examine the impact of lending on bank risk.
2. To assess the relationship between risk and financing.
3. Examine the impact of risk associated with bad debt on banking sector growth.
4. To examine the credit process and concerns
5. To assess the requirement for credit security documentation.
RESEARCH QUESTIONS
An in-depth examination of the following questions would provide an adequate solution to the study’s problems.
1. What are the consequences of lending in the banking sector?
2. What is the relationship between risk and lending in the banking sector in terms of growth?
3. What are credit processes and credit issues?
4. Is there any requirement for credit security documentation?
HYPOTHESIS STATEMENT
In this research project, we will develop a policy based on the notion that lending, when properly stated and executed, may be a powerful tool in the banking sector.
The following are the study’s hypotheses.
Ho: If the mixing and risks of lending are adequately managed, the growing rate of banks in Nigeria cannot be boosted.
Hi: Lending and lending risk, if correctly managed, can enhance the growth rate of Nigerian banks.
Risk and lending have a negative association, according to Ho.
Hi: A positive association exists between risk and lending.
Ho: The banking sector’s growth is unaffected by the bad loan issue.
Hi: Credit processing and issues should not be given any thought.
Banks.
Hi: Credit processes and issues should be thoroughly investigated.
Banks require security paperwork, according to Ho.
Hi: Banks must provide security documentation.
1.6 SIGNIFICANCE OF THE STUDY
Banks’ survival will be jeopardised unless they conduct an in-depth examination of risk management. This is one of the reasons why some banks fail because there is insufficient information on risk management in banking.
Thus, the purpose of this research is to shed additional light on the need for an overview of risk connected with bank lending, i.e. risk management and control in the banking industry.
The study’s findings will be useful to the following:
1. Existing banks as well as others that are yet to be created.
2. The management of the selected institutions chosen for the risk management and control research.
This study will specifically provide information and relevant data to bank management to help them deal with the problem of development in the midst of credit risk.
The study is also justified because it will be useful to loan officers as well as the generality of banks who will bear the strain of loan recovery, including the fact that the study will make it possible to examine how bad debt reduction will be achieved and sustainable banking growth, as well as make bank management and the generality of banks aware of what role they have to play in the extension of credit.
1.7 DEFINITION OF TERMS
RISK: The danger of loss, injury, disadvantage, or devastation is referred to as risk.
RISK MANAGEMENT: Risk management is the total of all proactive management-directed operations inside a programme that are meant to accept the probability of failures in programme elements.
LENDING: Lending is the offering of credit to an investor who is in desperate need of funds for investing reasons.
CREDIT: Credit is the ability to postpone payment for goods or services until they are obtained.
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