Interrogative of Enterprise Risk Management Practices on the Banks’ Financial Performance in Nigeria

Abstract

Deposit money banks play critical roles in any economy through their financial intermediation and their financial performance is of great importance to various stakeholders. Over the years, the banking sector has been experiencing unstable financial performance that often results in to collapse of some of the deposit money banks. Some of the challenges attributable to the banks fluctuating financial performance include the absence of adequate and effective enterprise risk management practices, unethical practices, liquidity crises and unnecessary government inferences. This has resulted in poor financial performance in terms of their Return on Assets, Tobin's Q, Net Profit margin and Earnings Per Share, among others. The study adopted an ex-post facto research design and content analysis. The population of the study was all the 12 listed deposit money banks in Nigeria in the Nigeria Exchange Group for the period 2007 – 2021. A total enumeration technique was adopted for the study. Data were sourced from the audited annual reports of the selected deposit money banks. Data were analyzed using descriptive and inferential statistics. The findings revealed that enterprise risk management has a significant effect on return on assets, Adj.R² = 0.218, F (7, 172) = 89.01, P < 0.05). Enterprise risk management has a significant effect on Tobin's Q, Adj.R² = 0.3367, F (7, 172) = 142.80, P < 0.05). The study concluded that enterprise risk management impacts the financial performance of deposit money banks in Nigeria. The study recommended that the Management of banks should put in place an independent Board Risk Management Committee as well as a functional Risk Management Committee with a versatile Chief Risk Officer that will ensure the effective implementation of enterprise risk management policies and processes, as its effective implementation will minimize operational, credit, market and liquidity risks, thereby enhancing banks' financial performance for the benefit of various stakeholders.