Effect of Political Risk Management on the Performance of Banks in Nigeria; A Case Study of GTBank Kano Branch
Chapter One
Objective of the study
The primary objective of this study is to investigate the impact of political risk management on the performance of banks in Nigeria. To achieve this overarching goal, the study aims to accomplish the following specific objectives:
- To assess the extent and nature of political risk faced by banks operating in Nigeria.
- To analyze the political risk management strategies employed by banks in Nigeria.
- To examine the influence of political risk on the financial performance of banks in Nigeria.
- To determine the effectiveness of political risk management practices in mitigating the adverse impacts of political risk on bank performance.
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
INTRODUCTION
Commercial banks are in the business of mobilizing deposits, lending money, investing funds and holding bonds and other securities. Performance of a commercial bank depends on balancing its striving for profit at the same time ensuring its liquidity with the least risk (Felix and Claudine, 2008). Credit risk emanates from a bank‘s dealing with individuals, corporate, financial institutions or a sovereign. The bank is exposed to credit risk through its trading, lending and investing activities and in cases where it acts as an intermediary on behalf of customers or other third parties or it issues guarantees (Drigă, 2012). According to Basel Committee on Banking Supervision, credit risk is defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms (Safakli, 2007). Credit risk arises from uncertainty in counterparty‘s ability or willingness to meet its pre-committed contractual obligations (Njanike, 2009). It arises from non-performance by a borrower. This can affect the lender holding the loan contract, as well as other lenders to the creditor. Therefore, the financial condition of the borrower as well as the current value of any underlying collateral is of considerable interest to its bank (Santomero and Mellon, 1996). Collateral is a form of security to a lender in case the borrower fails to repay a loan. It plays an important role in the financial sector, as it is a means of covering potential losses (Rufai, 2013). Credit risk is the risk of loss caused by a debtor defaulting on a loan or line of credit. In a bank‘s portfolio, losses stem from outright default due to inability or unwillingness by customer or counter party to meet commitments in relation to lending, trading, settlement and other financial transactions. Alternatively, losses may result from reduction in portfolio value due to actual or perceived deterioration in credit quality. The real risk from credit is the deviation of portfolio performance from its expected value (Rani, 2012). Commercial banks and other financial institutions form opinions about a company‘s credit risk by comparing current and future debt-service requirements to estimate of the company‘s current and expected future cash flows (Hamadi and Abdelmoula, 2010). Counterparty may default because of bankruptcy or temporary financial problems. Risk plays an important role in debt contracting. At loan inception, the lender estimates the expected credit risk that the borrower presents over the life of the loan. Absent provisions to control increases in credit risk, the lender prices the expected outcome in the interest rate of the loan. Both lender and borrower suffer when the expected credit risk of the borrower is high; the lender with increased risk over the life of the loan, and the borrower with a high interest rate.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine effect of political risk management on the performance of banks in Nigeria. GTbank kano branch form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain effect of political risk management on the performance of banks in Nigeria. A case study of GTbank kano branch. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing effect of political risk management on the performance of banks in Nigeria.
Summary
This study was on effect of political risk management on the performance of banks in Nigeria. A case study of GTbank kano branch. Three objectives were raised which included: To assess the extent and nature of political risk faced by banks operating in Nigeria, to analyze the political risk management strategies employed by banks in Nigeria, to examine the influence of political risk on the financial performance of banks in Nigeria and to determine the effectiveness of political risk management practices in mitigating the adverse impacts of political risk on bank performance. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from GTbank kano branch. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
In conclusion, the study has delved into the critical area of political risk management and its implications for businesses and organizations operating in an increasingly interconnected global landscape. Through a comprehensive review of strategies and challenges associated with political risk management, it is evident that this is a complex and multifaceted domain.
The strategies discussed, including diversification of operations, government relations, risk assessment, hedging, and local partnerships, provide a toolkit that organizations can use to navigate the uncertainties of political risk. These strategies aim to enhance resilience and minimize the potential negative impacts of political events on businesses.
However, the challenges highlighted in the study, such as the inherent complexity and uncertainty of political risk, rapid regulatory changes, resource intensity, ethical dilemmas, and local stakeholder resistance, underscore the need for a nuanced and adaptable approach to political risk management. Organizations must not only develop strategies but also remain agile in the face of ever-changing political environments.
Political risk management is not a one-size-fits-all endeavor; it requires a deep understanding of the specific political landscapes in which organizations operate. Furthermore, organizations must balance the pursuit of economic interests with ethical considerations and corporate social responsibility, especially when navigating political environments with ethical dilemmas.
As the world continues to evolve, with geopolitical tensions, regulatory changes, and societal expectations shaping the business environment, organizations must remain vigilant and proactive in their political risk management efforts. By doing so, they can not only protect their interests but also contribute to a more stable and sustainable global economy.
In this dynamic and interconnected world, political risk management is not just a business strategy; it is an essential part of responsible and resilient corporate citizenship. Organizations that can effectively manage political risk will be better positioned to thrive and create lasting value for their stakeholders, while contributing to a more stable and prosperous global society.
Recommendation
Based on the findings and insights presented in the study on political risk management, several recommendations emerge for businesses, policymakers, and stakeholders seeking to navigate the complex landscape of political risk effectively:
- Businesses should invest in advanced risk assessment tools and continuous monitoring systems to detect political risks early. Regularly update risk assessments to adapt to changing political environments.
- Organizations should proactively engage with government officials, regulatory authorities, and local stakeholders to build strong relationships. These relationships can provide insights, influence policy decisions, and help mitigate political risks.
- Businesses should consider diversifying their operations across different countries or regions to reduce exposure to political events in a single location. Similarly, diversifying investment portfolios can help spread political risk.
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