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CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY        

Inspite of our numerous national problems, which some times tend to darken our national and individual self esteem, It is universally acknowledged that Nigeria Scholars, Accountants Securities and there Professional have performed most creditably in their respective discipline in the competitive international area to assess the impact of Risk management in Nigeria banking industry. The need of a study in the area stems form the fact that through risk management is very important management function will much has done to eliminate or minimize the adverse effects of possible financial loss by
(1)   Identifying all the potential sources of loss
(2)   Measuring the Financial consequences of a loss occurring and using control to minimize actual losses or their Financial consequences.
On writing this research work successfully one cannot fail to say what bank is all about because the essence of this research centers mostly on the nature (impact) of risk management in Nigerian banking industry. There are many definitions of bank as there are defines.  It is been a here clean attempt overtime to define what s a bank, several school of thoughts, professionals and bodies have made bold attempt to address this issue. 
Oxford advanced learner dictionary, Simply defined bank as establishment for keeping money and valuables, safety the money being paid out on customers order.  However, bank could be generally described as a company carrying the business of receiving money and collection of drafts or cheques for customers subjects to obligation of honouring cheque drawn upon then from time to time by the customers to the extent of the amount available on their account or agreed facility. J.W Gibert also defined bank or a banker as dealer in capital or more properly, a dealer on money.  He is in intermediate party between the borrower and the lender.  He  borrows from one party and lends to another.
Adekanye (1986) united kingdom bills of exchange act 1882 defined bank as a body of persons whether incorporated or not who carry on the business of banking also the bankers, Books evidence Act o 1879 stated what the expression bank and banker mean persons partnership, or Company on the business of bankers and having duty make, or return to the Commissioner of on land revenue and also any savings bank certified under the any post office saving bank of recent, two leading authorities on banking law have attempted to define bank or bank as a place of receiving money and collecting drafts. Dr. Herbert Hart on his book law of  Banking proffered define that a banker is a person carrying on the business of receiving money and collecting drafts for customers subjects to the obligation of honouring cheque drawn upon them from time to time by the customers to the extent of the amounts available on their current accounts. Paget (1961) defined a bank as a corporation or persons who accept money on current accounts pays cheques on such accounts or demand and Collected chequed for customers. From the about definitions none of them is encompassing, comprehensive and compete.  
The corollary of the above definitions is that unless you duty wholly r partially is that of receiving money for credit off a current, from which depositors might withdrawn on demand by cheques, that person corporation on establishments is not a banker. However 1969 banking act of Nigeria defined banking as the business of receiving money from outside, sources and deposits irrespective of the payment of interest and the granting of money loan and acceptance of credits. The purchase of bills and cheques are sales of  securities for the accounts of others of the incurring of the obligation to acquire claims in resect of loans prior to their maturity in, or the assumption of guarantee and other warrantees for others or the effecting of transfers and clearings, others transactions as the Commissioner may on the recommendation of the central banking by order published on the Federal government gazette designated as banking business. From the above, it can been seen that  unless the principal or substantial part of the business consisted of receiving money for the  credit of the customer which the deposition must withdrawn on demand by cheque an establishment would not come within  the definition. Nevertheless, the bank role on the present day financial intermediation is for beyond that given  by our past defines for the  purpose of this work, references on the bank is he function could be drawn mainly or risk related activities. Banks therefore, generally perform a key function  of reducing risk of financial transaction of their customers who placed  funds with them and borrowers who are enabled to have the uses of these funds. 
To survive, banks must develop strategies effective enough to cope with the risks inherent in financial intermediation and other of both physical and more nature prevalent in banking and Nigeria economic environment the ability of the banking to perform its tasks efficiently and on harmony with there needs of  the public and economic goods set by the monetary authorities depends to a large extent in efficient and effective management of Risk inherent on the sector. Risk may be defined here as uncertainty concerning loss and loss itself represents the unintentional decline in disappearance of value arising from a contingency NEHR AND CANMACK (1980). It is pertinent at this juncture to give a brief background information about Afribank Nigeria Plc, the bank on its legal from commenced operation on 4th January 1960 was incorporated as a private limited liability company on 30th May 1969 and was converted to a public company on 7th October 1992. The companys here are currently quoted on the Nigeria Stock exchange. The principal activities of the Company is engaged on the Commercial Banking business.      
1.2      STATEMENT OF PROBLEM
The aim of the research will be to identify measures and recommend control which tends for the handline of Risk that exist in the operations of Nigerian Banks. To achieve the above stated goal,, This research would attempt to examine the role played by risk management in construction of strategies for the Improvement of Bank performance profitability the relationship between application of Risk Management tools in general failure of bank will be invertizated along side necessary corrective measure to be taken. This study will also identify the major sources from which risk and uncertainty may arise in banks and confirm whether.
(1)      Profitability can be achieved by adequate application of risk management policy.
(2)      Poor Performance by banks as a result of inadequate management of identified risks.
(3)      The cost of insurance is justified by the degree of loss and uncertainty associated with insured risk.
(4)      Banking regulations in Nigeria have helped banks in the management of such risk.
(5)      The level of awareness o banks management of existence and control of such risk are adequate and effective.  
1.3      PURPOSE OF STUDY
The general objective purpose is to study the nature and management of Risk in Nigerian banking industry, a case study is Afribank Nigeria Plc Enugu. Specifically the researcher intends:
(1)        To study the influence of effective risk management on profitability of Afribank Nigeria Plc Enugu.
(2)        To study the relationship between the  Risk Management Policy of Afribank and  its liquidity
(3)        To identify measures and control tools for handling risk management policy of Afribank Nigeria Plc Enugu.
(4)        To evaluate the extent to which employees benaurour contribute to risk management of Afribank Plc.
(5)        Finally, To suggest ways of improving risk management policy in Afribank Nigeria Plc.  
1.4      SCOPE OF STUDY
The basic tool of risk management and there application will be covered by this study as they obtain in Afribank Nigeria Plc Enugu as a particular reference.
(1)      What is or definition of a banks
(2)      Brief history of Afribank Nigerian Plc
(3)      The impact of various risks on the growth and profitability of bank would be analyzed.
(4)      The relationship of the tools of risk management government regulations on banks and solvency of the banks in the future.
(5)      Suggestions to help improve Risk management policy in Afribank Nigeria Plc.  
1.5      SIGNIFICANCE OF THE STUDY
The research considers the study worthy of investigation because to avoid failure and guaranteed growth given the current wave of deregulation strict enforcement of prudential guideline and stiff competition.  Some of the attendant benefits industrialists, managers of Finance institutions, small and medium scale industrialists policy makes and other researcher on this field and students. Bank who are the beneficiary must be fully prepared entails proper analysis and control of risk to fortify management for effective and efficient discharge of their duties.  Due to the dynamism of the Nigeria business environment act in motion by the current are makes risk management necessary for all banks.        
Risk management is a new Philosophy in Nigeria banking area because of the growing nature of the Risk.  This type of Study  become Tinely on order to create awareness in the bank management this study definitely stimulates research interest and management attention in the area of Risk analysis and management. The Institutionalization of the deposit insurance scheme by decree No 22 of 1988 which established NDIC by the requirements of the prudential guidelines emphasises further  the essence of Risk analysis and management of Nigerian banks.      
1.6      RESEARCH QUESTION
(1)          To what extent does the influence of effective risk management on Profitability effect Afribank Plc?
(2)          To what extent does the relationship between the risk management policy of Afribank and its Liquidity?
(3)          To what extent doe the measure and control tools risk management Policy of Afribank be identified?
(4)          To what extent could the employees behaviour contribute to risk management in Afribank Plc ?  
1.7      FORMULATION OF HYPOTHESIS
In order to ascertain the effects of a Property articulated risk management Policy on the performance of Banks. The major contentions of this research to be subsequently tested are:
Ho:  There is no significant difference between risk management policy of Afribank effect on profitability.
Ho2: There is no significant difference between the risk management policy of Afribank and its Liquidity. 
Ho3: There is no significant different between the employees behaviour contribution in the risk management in Afribank Nigeria Plc.
Ho4: There is no significant different (P < 05) between the responses of the Afribank Nigerian Plc, staff on the measure and control tools on risk management policy be identified.  
1.8      DEFINITION OF TERMS
BANKING INDUSTRY:  This is a place of establishment for receiving money from outside, sources and deposits irrespective of the payment of interest and the granting of money loan and acceptance of credits.  
RISK:   This is define here as uncertainty concerning  a loss and loss itself represent the unintentional decline on or disappearance of value arising form a contingency NEHR and CANMACK 1980.

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