UMAR FARUK Complete Project

EXAMINATION OF RISK MANAGEMENT IN THE BANKING INDUSTRY:
(A CASE STUDY OF FIRST BANK OF NIGERIA)
BY
UMAR MUHAMMAD GARBA
ADM: NO.: 1011204024
A RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT
OF ECONOMICS, FACULTY OF SOCIAL SCIENCES, USMANU DANFODIO
UNIVERSITY, SOKOTO. IN PARTIAL FULFILMENT OF THE
REQUIREMENT FOR THE AWARD OF BACHELOR OF SCIENCE DEGREE
(B.Sc. HONS) IN ECONOMICS
OCTOBER 2015
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APPROVAL PAGE
This is to certify that this project work is well research by UMAR MUHAMMAD
GARBA (ADM: NO: 1011204024) and well supervised and approved by Malam
Abdullahi I Gatawa as part of partial fulfillment of the award of B.Sc. Degree in
Economics, faculty of social sciences, Usmanu Danfodio University Sokoto.
………………………………. ……………………
Malan. Abdullahi I Gatawa Date
(Project supervisor)
………………………………. ……………………
Prof. Tukur Garba Date
(Head of Department)
………………………………. ……………………
External Examiner Date

DEDICATION
This research work is dedicated to my mother, Hajiya Aisha Jummai Bello.
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ACKNOWLEDGEMENT
In the name of Allah, the beneficial, the merciful, Glory to be Almighty God, whose
praise should proceed every writing and speech, may the blessing of God rest on
prophet Muhammad (S.A.W.) the prophet and apostle Muhammad (S.A.W) by whose
guidance errors escaped.
First and foremost my sincere grateful goes to Almighty Allah who has spared my life
from the beginning to the end of my degree programme.
My special gratitude and appreciation goes to my project supervisor Malam. Abdullahi
I Gatawa for his effort and immeasurable work of knowledge. Thanks and may God
bless and reward you abundantly, Ameen and also wish to sincerely thank my H.O.D
Prof. Tukur Garba, and my entire lecturers in the department of Economics, faculty of
social sciences.
I also appreciate my project co-ordinator Prof. Y.U. Dantama for his advise towards the
accomplishment for this work.
My special thanks also go to my parents Mal. Muhammad Baban Garba and Hajiya
Aisha Jummai Bello for their moral upbringing, financial support and care toward me,
may Almighty Allah reward them and give them more effort to assist others.
My gratitude also goes to my sister Yahzainab Mg and her husband Suleiman Isyaku
who help me both morally and financially may God reward them Ameen. I will also
like to thanks my family members like Mama Dija, Aunty Salma, Maman Abba,
Mummy Mg, Sha’awanat Mg, Rukayya Mg, Khadija Mg, Hauwa Mg, Ado Mg,
Abdullahi Okala and also the rest of my family members may God Almighty blessed
them all Ameen.
My appreciation also goes to my friends and my course mate in person of Hassan
Kabiru, Musty Arzika, Sulieman Merah, Aliyu Prop, Mahmud , Junior Bakura, Khalifa
Gajo, Lawan Yusuf, Humairah Umar etc. May Allah reward them Ameen.
TABLE OF CONTENTS
CONTENTS PAGES
Title of Page i
Approval Page ii
Dedication iii
Acknowledgement iv
Table of Content vi
CHAPTER ONE: INTRODUCTION
1.1 Background to the study 1
1.2 Statement of research problem 4
1.3 Research hypotheses 5
1.4 Objectives of the study 6
1.5 Significance of the study 6
1.6 Scope and limitations of the study 7
1.7 Scheme of the study 7
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction 9
2.2 Concept in Examination of Risk Management 9
2.3 Examination of Risk Management process 14

2.4 Important of Examination in Risk Management 21
2.5 Challenges of Examination in Risk Management 22
2.6 Solution to Examination in Risk Management Challenge 23
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction 25
3.2 Research Design 25
3.3 Population of the study 26
3.4 Sample size and sampling techniques 26
3.4.1 Sampling techniques 26
3.5 Sources and methods of data Analysis 27
3.5.1 Instrument used 28
3.5.2 Administration of the questionnaire 28
3.6 Techniques of data analysis 29
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction 31
4.2 Data presentation and analysis 31
4.3 Test of hypothesis 51

4.4 Finding and discussions 54
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction 56
5.2 Summary 56
5.3 Finding and conclusion 57
5.4 Recommendation 59
Bibliography 60
Appendix 63
Appendix
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The banking industry as a financial institution is indispensable machinery and plays a
paramount role in the process of economic growth and development. This
acknowledgement is reinforced by contemporary conceptualization of mobilizing
resources from surplus units and channeling some of it to deficit units. The growing
dynamic of business environment therefore has created ambivalences necessitating
control and coordination most especially in the financial institutions. This ambivalence
has parallel movement with risk organization today conduct business under the
condition of uncertainty, thus the analysis of this uncertainty entail processes to
measure the degree of risk involved. To this end, it would be impossible to understand
fully the centre point of this study without looking at the meaning of risk and
examination of risk management.
Risk is defined as the chance of having a loss due to occurrence of an event. The risk is
always associated with the loss aspects since the world itself has the association of
danger of loss. The definition can be ''probability of the occurrence of an event
resulting in loss/gain (Rajaram et al 2009).
Similarly, according to Dickson and Stein (1999) risk is the likehood that the hazard
will indeed cause the peril to operate and cause the loss. However in order to operate
and appreciate the need for loss prevention and implementation measures to achieve
same, the efforts are not only aimed to prevent a loss happening, but also to make it
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manageable if it happens. This task is to be achieved in all activities of the organization
be in it production, storage, handling, transportation and distribution. The basic process
of risk planning risk control and risk financing is integrated into a process known as
examination of risk management.
Rejda (2005) is of the view that examination of risk management is a process that
identified loss exposures faced by an organization and selects the most appropriate
techniques for treating such exposures. Examination of risk management ensures that
organization identified and understands the risk to which it is exposed. Examination of
risk management also guaranties that the organization creates and implements an
effective plan to prevent losses or reduce the impact if a loss occurs.
Examination of risk management which is the subject matter of this study is concerned
with planning and controlling of activities and resources in order to minimize the
impact of unforeseen accident. And examination of risk management plan includes
strategies and techniques for recognizing and confronting this threat. Good
examination of risk management does not need to be expensive or time consuming; it
may be as uncomplicated as answering question such as; what can go wrong? What
will we do to prevent the harm from occurring or in response to the harm loss? If
something happen, how will we pay it?
Examination of risk management therefore, has to do with the effect of uncertainty on
objectives, (whether positive or negative) followed by coordinated and economical
application of resources to minimizes, monitor and control the probability and impact
of unfortunate events or do maximize the realization of opportunities. Risk can come

from uncertainty in financial market, project failures, legal liabilities, credit risk,
accident and disasters as well as deliberate attacks from an adversary (Rajaram et al
2009).
Thus in perfecting organizational policies, examination of risk management must be
well considered in the system for its efficient survival. Many large companies today
have employed a full time manager, an executive whose main job is to identify the
various forms of risk facing the firm and determine the best ways to handle them, for
example, personal injury, fire damage, helicopter crash, theft of properties, loss of
profit in fulfillment of obligation, change interest rates, efficiency fraud etc. Many
empirical literatures showed several attempt at explaining and measuring risk-taking
behaviors in banks to incentives creates by safety-net program such as the fixed-rate
deposit insurance system which though arguably, engenders cross-subsidization by
creating avenues to take on risk inefficiency; the so-called moral hazard problem. The
moral hazard view of risk taking in banks assumes that shareholders make the lending
and investment decisions and therefore take a risk to maximize the value of insurance if
they so desire (Owojon et al 2011).
According to the Soludo (2004), it is now time to set up a structure that creates a strong
base relative to the kind of economy we are operating where banks become channels to
do proper intermediation (The Obasanjo Economic Reforms On The Banking Sector,
2005).
The banking business by its nature is a high risk environment. It is the only business
where the proportion of borrowed funds is far higher than the owners’ equity. A high
level of financial leverage is usually associated with high risk. This can easily be seen
in a situation where adverse rumors, whether founded or precipitated financial panic
and by extension a run on a bank. According to Umoh (2002) and Frequson (2003) few
banks are able to withstand a persistent run, even in the presence of a good lender of
last resort. As depositors take out their funds, the bank is forced eventually to close its
doors. Thus, the risks faced by banks are endogenous, associated with the nature of
banking business itself, whilst others are exogenous to the banking system. The risk
that arise in the course of business which bankers should be able to control include,
amongst others, credit risk, liquidity risk, reputation risk, leadership risk and
information technology risk. On the other hand, the risk that are exogenous to the
banking system which trend to pose the greatest control problem to bankers include
regulatory risk, industry risk, government policies risk, sovereign risk and market risk.
Other important ones, as added by Umoh (2002), include competition risk human
resources risk and fraud risk.
1.2 Statement of the Research Problem
There is no system that is totally perfect or immune to the effect of the present
possibility for banks to diversify into broader range of service and products make life
really cool for banking entrepreneurs and managers. But this diversification advantage
is a once in a lifetime opportunity that should be consumed with some caution and
prudent as this involved a great deal of risk. This is in direct line with the saving that''
the higher you go, the colder life becomes; Banks use these deposits to generate credit
for their borrowers, which in fact is a revenue generating activity for most banks.
This credit creation process exposes the banks to high default risk which might led to
financial distress including bankruptcy. This study looks at problems arising from
fraud, forgeries, project, investment portfolios and misadministration. The question
here is how responsive are banks, in the examination of management and control risk?
Other questions below need answer in the quest to examine examination of risk
management in banks.
1. What are the types of risks faced in the banking industry?
2. What is the efficacy of techniques used by banks to curb the volatile tendency of
their environment?
3. What is the human capacity needed to respond professionally to risk situation in the
banks?
4. How banks evaluate and control examination in risk situation?
1.3 Objectives of the Study
i. To identify the types of risk associated or related to banks in Nigeria.
ii. To examine management techniques normally applied in the management of the
risk in the banking industry.
iii. To suggest how to evaluate and control risk in the banking industry.
iv. To assess how personnel quality in examination of risk management reduce banks
distress.
v. To find out whether the relationship between the bank officials and customers is
cordial.
1.4 Research Hypotheses
For the purpose of this research, the following hypotheses are set to guide the study:
i. That there are risks that have direct impact on the operation of banks.
ii. That examination of risk management is control in the strategic management
process of banks.
iii. That there is a positive relationship between adequate human capacity and the
level of risk exposure in the banking industry.
iv. That examination of risk management helps in ensuring the survival of a system
(organization).
1.5 Significance of the Study
This research work is of immense significance, hence it contribute to the body of
knowledge for further research on the subject matter, also it will help the policy makers
to use this research work as a reference or guidance for their policy formulation.
Management of banking operations usually depends on subordinates through delegated
authority to carry out their duties, it is necessary for management of banking sector to
issue policy statement as guide to action.
The creation of examination of risk management in the banking sector place reliance
on accounting data generated by the management used for decision making. Also to
pressure the asset and income of the organization and banking risk for accidental of
loss . Thus, this research work is believed to be of great help to those who are directly
or indirectly involve in the banking system. It will be of great importance to; the
management of banks, the authorities regulating the banking affairs, both academics
and the general public who has interest in and have been so curious about the meaning
of risks and examination of risk management in the banking industry.
1.6 Scope and Limitations of the Study
Thus study focuses on examination of risk management in the banking industry with
particular interest on First bank of Nigeria between the years 2010 to 2015. It covers
both the phenomenon examination of risk management associated with banks in
Nigeria. On the other hand, the limitation of the research may include:
a. Time limitation- The length of time available to study and find out how efficient
the research work will be completed.
b. Financial Limitation- The money that will be used to run the project.
c. Logistics- Organization that will be needed to make a complicated plan of the
research successfully.
1.7 Scheme of the Study
This project has been divided into five (5) chapters as follows; Chapter one focuses on
the introductory aspects of the study .Comprising background to the study, statement of
research problem, research hypotheses, objectives of the research, significance of the
study, scope and limitation of the study and scheme of chapters.

Chapter two features the literature reviews which consist of; introduction, concept of
risk management, examination of risk management process, importance of risk
management, challenges of examination in risk management, solution to the challenges
and conclusion.
Chapter three deals with the research methodology and means of data collections
Chapter four is based on data presentation and data analysis. It also addresses and
discusses findings.
Chapter five highlights summary of the findings, conclusion and recommendations

CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
Examination of risk management in an organization has a typically issue with
academics and business practitioners over the years. A high percentage of these three
groups do not understand the importance of examination in risk management but
unfortunately, the issue is handled on life services basis among business concerned
Dickson (1984).
Hence, this study focuses on the review and articulation of related contemporary
literatures on examination of risk management in business organization and financial
institutions alike. The subsequent part of this literature review will also unfold the
dynamics in examination of risks and its management in an organization.
2.2 Concept in Examination of Risk Management
The concept in examination of risk management is the combination of three term
married together; the divorcing of the three terms and reintegration will give a better
understanding of the phenomenon of examination in risk management in organization.
Examination may refer to: physical examination, a medical procedure, (more popularly
known as a check-up or medical) is the process by which a medical professional
investigate the body of a patient for signs or disease. Questioning and more specific
forms thereof, for example in law: cross-examination, direct examination. Bank
examination; and examination of the affairs and records of a bank by a state or federal
bank examiner, the term risk has no single definition. It is an everyday language used
by different people to mean different things depending on the circumstances.
Economist, behavioral scientists, risk theorist, statisticians, and actuaries each have
their own concept of risk. However, risk traditionally has been defined in terms of
uncertainty. Based on this concept, risk defined here as uncertainty concerning the
occurrence of a loss (Rejda 2005).
According to Dickson and stein (1999) risk is the likelihood that the hazard will indeed
cause the peril to operate and cause the loss.
Similarly, Bola et al (2009) defined risk as the probability and consequences associated
with a particular course of action or in the alternative, a hazard concerned by a contract
of insurance. Also, Harrington and Niehaus (1999) content that, risk is the doubt
concerning the outcome in a given situation; hence it is uncertainty as to the occurrence
of a loss, risk is unpredictability of an unfortunate occurrence, risk is the chance of
loss, risk is a combination of hazard; finally, when risk is defined as uncertainty, some
authors make a careful distinction between objectives risk and subjective risk, objective
risk (also called degree of risk) is defined as the relative variation of actual loss from
expected loss, while subjective risk is defined as uncertainty based on a person’s
mental condition or state of mind (Rejda 2005).
Management according to Fayol (1949) is task managers must perform to be successful
which are articulate as managerial functions: planning, organizing, coordinating,
commanding, and controlling. Stoner et al. (2000) defines management as the process
of planning, organizing, leading, and controlling the work of organization members

and of using all available organizational resources to reach stated organization goals.
Similarly, Jewel (2000) defined management as the: art of getting things done by
people; achievement of objectives via the effective utilization of resources; attainment
of organizational goals in an efficient and effective manner by planning, organizing,
leading and controlling organizational resources.
Looking at the definition of both terms given above, Williams and Heins (1985) define
examination of risk management as the identification, measurement, and treatment of
property, liability, and personal pure-risk exposure. Similarly, Dickson and stein
(1999): Examination of risk management means the identification, analysis and
economic control of those risks, which can threaten the assets, or earning capacity of
enterprises.
According to Redja (2005), examination of risk management is a process that involves
the identification of loss exposures faced by an organization and select the most
appropriate techniques for treating such exposure. Based on the definition offered by
the insurance Bureau of Canada (2009), risk management is the systematic way of
ensuring protection of business resources and income against losses so that the aims,
goals, and vision of the company can be reached. In addition, according to ISO/IEC
guide 73 (2002) risk management is a control part of any organization’s strategic
management. That is, it is a process whereby organizations methodologically address
the risks attaching to their activities with the goal of achieving sustained benefit within
each activity and across the portfolio of all activities. Workman (2005) contends that
“the field in examination of risk management is undergoing monumental change.

Risk managers must understand financial markets and be able to affectively incorporate
quantitative analysis and technology in their risk management programs” major event
in the world, most of such events which have been catastrophic in nature were all
associated with poor risk management system. Chilekezi (2006), argue further that,
globally, and in past, there had been cases of properly damage, death or liabilities as a
result of unforeseen circumstances that were severe, the like of MGM grand hotel fire
the collapse of a skywalk in Kansas city hyatt regency Hotel, crash of an American
DC-10 take off at Chicago O’Hare international Airport. Coming home in Nigeria, we
have cases of several plane crashes and equally disasters terrorist attack (ADC airline
in 1996, sky Express 2002, Easin 2001, independence day Bomb blast in 2011, Boko
Haram up to date 2015, etc).
Redja (2005) also contend that, business firms are confronted with a number of
speculative financial risks as such poor risk management by organization can be very
devastating. Furthermore, traditionally, risk management was limited in scope to pure
loss exposures, including property, liability and personal risks. An interesting trend
emerge in the 1990s, however, as many businesses began to expand the scope of risk
management to include speculative financial risks.
This position of Redja (2005), takes us to the next step which deals with the type and
level of risks, their likely occurrence and how the organization handles risks that are
insurability and non-insurability of risk, Pritchett et al (1996), risks can be classified
into several distinct categories. Pure and speculative risk, fundamental and particular
risk, and Enterprises risk,

Redja (2005), defined pure risk as a situation in which there are only possibilities of
loss or no loss. The only possible outcomes are adverse (loss) and neutral (no loss).
Chikelezi (2006) defined pure risk as a risk that has elements of loss or no loss without
that of a profit. Speculative risk on the other hand according to Chikelezi (2006) is a
risk that portends a situation of loss, no loss or a profit. This kind of risk is otherwise
known as business risk.
Fundamental risk according to Pritchett et al (1996) is a risk that affects the entire
economy or large numbers of persons or groups within the economy. Examples include
rapid inflation, cyclical unemployment, and war because large numbers of individuals
are affected.
Redja (2005), similarly content that fundamental risk are very important because
government assistance may be necessary to insure a fundamental risk. For example, the
risk of unemployment generally is not insurable by private insurer but can be insured
publicity by the federal government unemployment compensation programs. In
contrast to a fundamental risk, a particular risk is a risk that affects only individual and
not the entire community. The distinction between fundamental risk and particular risk
here is very clear and important for business organization to be very cautions of
confusion and treatment.
Enterprises risk Gitman (2005) is a relatively new term that encompasses all major
risks faced by business firms. Such risks include pure risk, speculative, risk,
operational risk, and financial risk.

Strategic risk here refers to uncertainty regarding the firm’s financial goals and
objectives. Operation risk is the risk of direct and indirect loss resulting from
inadequate or failed internal processes people and system or external threats generate.
Operational risk may include fraud. By this we mean a situation where customers
and/or bank staff intentionally falsify information or present forged documents. It may
also include technology risk which refers to the risk of inadequate or ineffective
operating and information technology infrastructure to support the business of bank
(Owojori et al 2011). Other examples are system failure, losses due to natural disasters,
and accidents involving key management staff of the bank.
Enterprises risk also includes financial risk, which is becoming more important in a
commercial risk management program. Financial risk refers to the uncertainty of loss
because of adverse change in commodity prices, interest rates, foreign exchange rate
and the value of money, for bonds may incur losses if interest rate rose.
Thus, the traditional separation of pure and speculative risks meant that different
business department addresses these risks. Pure risks were handled by the risk manager
through risk retention, risk transfer, and loss control. Speculative, risks are handled by
the finance division through contractual provision and capital market instruments.
2.3 Examination of Risk Management Process
Redja (2005) contend that the process in examination of risk management, the
management is confronted with two important objectives. These objectives can be
classified as follow: Pre-loss objectives, Post-loss objectives.

Chilekezi (2006), a developing nation experiencing expansion in its industrial activities
must weary of the risks associated with such development. That, the phenomenon of
risk have great impact on developmental process, as such, an efficient risk management
system should be established to create awareness when it’s still in its infancy stage.
Note, the pre loss objectives of risk management before a loss occurs include economy,
reduction of anxiety and meeting legal obligations.
Redja (2005), opine that, the first objectives means that the firm should prepared for
potential losses in the economical way. This preparation involves an analysis of the
cost safety program, insurance premiums paid, and the costs associated with the
different techniques for handling losses. Also, certain loss exposure can cause greater
worry he described as a reduction in anxiety and finally, the firms attitude toward
government regulation of a safety device to protect workers from harm to dispose of
hazardous waste materials property. The manager must see that those legal obligations
are met.
Examination of risk management also has certain objectives after a loss occurs. These
objectives include survival, continuity in operations, and stability of earning, continued
growth, and social responsibility. However, Redja (2005) content that, the most
important post loss objectives of a business organization is survival. Survival means
that after a loss occurs, the firm can resume at least partial operation with some
reasonable time period. This position of Redja takes us to the analysis of steps involved
in examination of risk management.

Harrington and Neihaus (1995) revealed that regardless of the type of risk being
considered, the examination of risk management process involved several key steps:
Identifying all significant risk that can reduces business value (cause loss). This
process is important to the firm as it allows the firm to, earlier enough; identify those
risks that could threaten their corporate existence. Redje (2005) contend that, this step
involves a painstaking analysis of all losses related to the following; property loss
exposures, liability loss exposure, business income loss exposures, human resources
loss exposures, and reputation and public image keep abreast of industry trends and
market changes that can new loss exposures and cause concern.
Evaluate the potential frequency and security of loss, loss frequency refers to the
probable number of losses that may occur during some given time period. Loss severity
refers to the probable size of the loss that may occur Redja (2005). Hence, once the risk
manager estimate the frequency and severity of loss for each type of loss exposure, the
relative importance. Inadequate evaluation standard of risk management fasten
business organization failures.
The problems of distress in the banking industry which is associated with examination
of poor risk management, according to Ojo (1994) is connected to the prevailing, poor
asset quality, mis-matching of assets and liabilities, bad management and insider abuse.
Similarly, Olagun (1994) also in his own series of research pointed out that the attitude
of the colonialist, inadequate legal frame work and structure, ownership, inadequate
capital, poor management, dearth of experience and qualified personnel, societal and
political instability, explosion in the number of financial institutions, illiquidity insider

abuse and fraud and all contributing factors that led to many bank failures in the last
century.
Also, operational risk become more pronounced in the consolidation era in the
Nigerian banking industry as looses are now running into about three billion naira in
each case. These losses arise principally from weak internal controls and the retention
of staff with high propensity for fraudulent practices. Invariably, banks with high
volume of losses from frauds tend to have these two factors and often the weak internal
control manifests in such ways as preponderance of un-reconciled items, non-
segregation of active from dormant balances, lack of dual control of strong room, lack
of online auditing for banks that are online, etc. an analysis of the types of frauds and
forgeries are perpetrated by banks officials and top executive (Owojori et al 2011).
Selection the appropriate techniques for treating the loss exposures which involves
selecting a techniques or combination of techniques that best curb a risk or loss
exposures situation. These techniques can be classified broadly as either risk control or
risk financing;
Risk control refers to techniques that reduce the frequency and severity of loss
exposures. Examples could be a central bank of Nigeria stipulation of required
commercial banks reserve ratio strength. Major risk-control techniques include the
following;
Avoidance: which means a loss exposure is never acquired, or an existing loss
exposure is abundant. For example, flood losses can be avoided by not building a new
plant in a flood plain. The major advantage of avoidance is that the chance of loss is
reduced to zero if the loss is never acquired.
Loss prevention: refers to measures that reduce the frequency of a particular loss. For
example, measures that reduce lawsuits from defective products include installation of
safety features on hazardous products, placement of warning labels on dangerous
product, and institution of quality-control checks.
Loss reduction: refers to measures that reduce the severity of loss after it occurs
examples include installation of an automatic sprinkler system that promptly
extinguishes a fire, segregation of exposure units, such as having ware houses with
inventories at different locations:
While risk financing as another option refers to techniques that provide for the funding
of losses after they occur. Major risk financial techniques include the following.
Retention: which means that the firm retains part of all of the losses that can result
from a given loss? Retention can be active or passive. Redja (2005), conclude that,
retention can be effectively used in examination of risk management program under the
following conditions where;
No other method of treatment is available
The worst possible loss is not serious
Losses are highly predictable
Also, he contends that if retention is used, the risk manager must determine the firm’s
retention level, which is the money value of the losses that the firm will retain. Thus, a
financially strong firm can have a higher retention level than one whose financial
position is weak.
Non-insurance transfer: are other risk financial techniques. It is a methods other than
insurance by which a pure risk and its potential financial consequences are transferred
to another party. Examples of noninsurance transfer include contract, shares, lease, and
hold-harmless agreements. In a risk management program, non insurance transfers
have several advantages;
The risk manager can transfer some potential losses that are not commercially
insurable; Non insurance transfer often cost les than insurance;
The potential loss may be shifted to someone who is in a better position to exercise loss
control.
However, non insurance transfers also goes with several disadvantages:
The transfer of potential loss may fail because the contract language is ambiguous.
If the party to whom the potential loss is transferred is unable to pay for the loss, the
firm is still responsible for the claim.
An insurer may not give credit for the transfer, and insurance cost may not always be
reduced.
Finally, commercial insurance is also used in examination of risk management
program. Redja (2005), insurance is appropriate for loss exposures that have loss
probability of loss but for which the severity of loss is high. If the risk manager uses
insurance to treat certain loss exposure, four key areas must be emphasized;
First, the risk manager must select the insurance coverage needed. The coverage
selected must be appropriate for insuring the major loss exposures identified in step
one. To determine the coverage needed, the risk manager must have specialized
knowledge of commercial property and liability insurance contracts.
Secondly, the manager must select an insurer or several insures. Several important
factors come in to play including the financial strength of the insurer, examination of
risk management services provided by the insurer, and the cost terms of protect. Also,
the risk manager must consider the availability of risk management services in
selecting a particular insurer.
Thirdly, after insurer or insurers are select the terms of the insurance contract must be
negotiated that is, the risk manager and the insurer must agree on the document that
will form the basis of the basis of the contract. Also important the dissemination of
information concerning such insurance coverage or contract to the employees and
management to ensure compliance. Finally, the insurance program must be periodically
reviewed. This review is especially important considering the volatility of the
environment in which the business organization from part of and depend on for its
survival.
Implementation and evaluation in examination of risk management techniques; this
step begins with a policy statement. A policy statement for an examination of risk
management is necessary to have an effective risk management program. This
statement outlines the risk management objectives of the firm, as well as company
policy with respect to treatment of loss exposure. Also, the risk manager does not work
alone. Other functional departments within the firm are extremely important in
identifying pure loss exposures and methods for treating these exposures.
Finally, the examination of risk management must be periodically review and
evaluated to determine whether the objectives are being attained. In particular, risk
management cost, safety programs, and loss prevention program must be carefully
monitored.
2.4 Importance of Examination in Risk Management
Examination of risk management is not just a process for corporation or public
organization, but for any activity whether short or long term. The benefits and
opportunities should be viewed not just in the context of the activity itself but in
relation to the many and varied stakeholders who can be affected (ISOIEC Guide
73:2002).
George (2005) concludes that despite the complexities of risk management, however,
an effective risk management program yield substantial benefit to the firm or
organization. Major benefits include the following;
The pre loss and post loss risk management objectives are more easily obtainable.
The cost of risk is reduced, which may increase the company’s profit. The cost of risk
is a risk management examination tools that measures certain costs. These costs
includes premium paid, retained losses, outside risk management services, financial
guaranteed internal administrative cost and axes fees, and certain other expense.
Because the adverse financial impact of pure loss exposure is reduced, a firm is able to
enact and enterprises in examination of risk management program that treats both pure
and speculative loss exposures.
Society also benefit since both direct and indirect (consequential) loss are reduced. As
a result, pain and suffering are reduced.
In conclusion, it is clear that risk managers are extremely important to the financial
success of business firms in today’s economy. According to Bernstein (2005) “the
essences of examination in risk management lies in maximizing the areas were we have
absolutely no control over the outcome”.
2.5 Challenges of Examination in Risk Management
Research has shown that pace of change and global interconnection of business have
resulted in increasing complexity, creating significant examination of risk management
challenges for companies to address (Ernest and young 1979). Similarly, Renand and
Klinke (1997) contend that, this increasing challenge for examination of risk
management goes together with the emergency of a new concept, called systemic risk.
The term denotes the fact that risk to human health and the environment is embedded
in a large context of social, financial and economic and opportunities.
Similarly, ERM research (2011) outline the leading causes of complexity that became
apparent include;
Resolution and government oversight, information management, speed of innovation,
and the variability of complexity.

Giving the rapidly shifting nature of underlying causes of complexity, all too soon
management discover that the underlying driver of complexity has quickly evolved,
leading to new risks to oversee. Thus, increased risks to manager emerged as the
greatest challenge to both mature and development economics produced by
complexity. With more than 80% of executives stating that complexity creates more
risks for their organization to manage.
2.6 Solutions to Examination in Risk Management Challenges
Shah (2011), propose five (5) ways by which examination of risk management
challenges can be substantially address which are as follows:
Leverage internal audits to lower costs and coverage risk. It is an agenda of converging
the company’s SOX, operational risk and compliance risk management. It encourage a
silo-based organization to adopt a more comprehensive and convergent approach,
thereby, the company creating one central repository and avoiding the clutter and effort
associated with creating multiple repositories.
Establish comparable risk profile across business units: He explains further that, the
single greatest obstacle to a company realizing the full benefits of an operational risk
management program is the lack of a common definition of risk across the enterprises.
This confusion leads to companies struggling to answer even basic question: How do
we compare risk in one business to risk in another? What constitute “loss”? How
should it be measured? As a result, companies fail to identify which business
operations are in fact experiencing risk.

Use granular examination of risk management to achieve top-to-bottom ownership and
end-to-end investment value: a comprehensive and well-managed operational
examination of risk management program encompasses close executive oversight,
regular reporting of risk exposure and coherent policies communication clearly to the
entire company.
Implementation risk simulators to rationalize resources and make smart investment:
While many companies have dedicate chief risk officer, the CFO can play a vital role
in creating a coordinate strategy by assessing cost against returns, ensuring appropriate
staffing levels, strengthening controls and determining the value of implementation.
Optimize operational risk capital through performance based risk management: CFOs
can ensure that the organization takes an enterprises view of operational risk capital
rather than by business line, which can create capital requirement. Generally,
operational risk capital is calculated by business line and then aggregated to arrive at
operational risk capital of the organization.

CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter composes of the population, sample and sampling techniques, sources and
methods of data collection, and method of data analysis.
3.2 Research Design
The research design used for this research work is descriptive design. A descriptive
design consist of a set of gathered data or information analyzed, summarized and/or
interpreted along certain line of thought for the pursuit of specific purpose or study. For
the purpose of this work, a descriptive design will be used because it describes the
characteristics of certain factors to make specific prediction. The research work uses
two variables: that is, independent variable and dependent variables.
The independent variables comprises the role of management proficiencies and quality
of commercial banks as it stands alone and its justified by the following factors; viable
financial records, nature of operations, quality of personnel etc., and when it is
intensified the effect will be felt on risk impact.
The dependent variable is risk management and the varying from it takes. This is so
when commercial bank performs its role in risk management, risks will be alleviated or
reduced.
3.3 Population of the Study
In the course of this study, the population for the research is about 5000 people, out of
which about 90 staff and 4,910 customers of First Bank of Nigeria Plc.
3.4 Sample Size and Sampling Techniques
The research work sample is First Bank of Nigeria plc. The sample has been selected
due to it sustainable banking, viable financial records and employees proficiencies. The
research sample comprises of seventy (70) customers and twenty (20) management
staff. The sampling size is the numbers of smaller group selected from the entire
population on the number of the people, and the result revealed by the sample would
relate to the population.
3.4.1. Sampling Techniques
There are two types of sampling technique: statistical and non statistical sampling. For
the purpose of this research, the research work used non-statistical sampling technique
of survey research method as they are less time consuming; it is well understood and
refined by experience.
In order to collect sample therefore, Haphazard collection method of non-statistical
sampling will be used because this type of sampling method is based on the research
best judgment of which element of the population to select to form the sample. The
research is quite aware of the fact that it is not all the staff of the bank that will be in
the best position to answer questions posed.

The research select staff from top level manager, middle level managers and line
managers of the banks as they are directly and indirectly involved in taking decision
that affect the entire organization. This is because they are in the best position to
respond to the question in the questionnaire. The research intends to select ten (20)
respondents from the top level management and five (10) each from middle and line
manager category of staff. There response to the questions in the questionnaire will be
grade based on percentage (100%).
3.5 Sources and Methods of Data Analysis
The sources of data collection to be used to accomplish this research work include
primary and secondary sources.
Primary Sources: - These are data or materials collected from its raw and original
source. They are data collected at the present research in its original nature. The
methods of collecting those data include questionnaires; interview; and observation for
the purpose of this research work, the methods to be used are questionnaire and
personal interview.
For this research, questionnaire and interview will be used to test the bank officials and
customers sampled. Questionnaire will be used to obtain quantitative data in order to
test the hypothesis stated in the chapter one of this project. Hence the interview will be
used is to get more in-depth explanation from the staffs in respect to some of the
questions raised in the questionnaire since the research may not be able to capture the
entire possible response of all the respondents. Questionnaire alone was used on the
bank officials and customers sampled as it is difficult to organize an interview session

with staffs and customers that are in haste to go return to their post of duty. Responses
from respondents were, disagreed and some questions may demand a yes or no answer
etc.
Secondary Sources:- This refers to published works, that is, data already existing in
the form of textbooks, journals, Newspapers, periodicals, bulletin and many such
publication that contain relevant data on the research topic from which data has been
collected for the purpose of this research. Other contemporary references include the
internet and other global new technological changes.
3.5.1 Instrument Used
The validity and reliability of the instrument was enhance by the investigator, because
there was clear information on how to complete the questionnaire by the respondents.
All the information in the research were seriously screened and provided to be correct.
3.5.2 Administration of the Questionnaires.
The research made use of interview and questionnaire instruments in order to receive
fact or first-hand information from primary sources. Through interview, the researcher
can control his question to get the type of response he wanted and also receive details
from the respondents. It also permits the researcher to personally approach the
interview with the understanding or understandable questions to get effective response
and desired information. Questionnaires were used to obtained information from the
bank staff and customers who might not be available for one reason or the other for
face to face interview.

3.6 Techniques of Data Analysis
Statistical methods would be adopted in presenting and analyzing the collected data.
Such statistical techniques employed are: frequency distribution and percentage.
Frequency distribution would entail the rate of occurrence of response and would be
grouped and distribution level measured. Percentages entails the values attached to
each response and the frequencies as above, and would also be rated on percentages.
The percentage base ranks 100%.
For the purpose of this research work, the method used in analyzing data is chi-square
test of independence. Chi-square test of independence shows whether there exists a
relationship between two variables. It is an inferential statistic tool that use probability
theory to test for hypothesis, allow inference to be made from a sample to a population,
confirm whether quantitative result obtained through questionnaire are likely to be due
to random factors or a real relationship (Neumann,2000). The formula to be used in
calculating the chi-square (x2) value is donated as follows:
X2 = ∑ (fo-fe) 2
Fe
Where, ∑= Summation sign,
Fo = Observation frequencies
Fe = Expected frequencies
X2 = Chi- square
Degree of freedom = N- K = 2- 1
Significance level = 5 % (0.05)

Decision Rule
Where the computed value is less than the table value accept null hypothesis (i.e. Ho)
and reject alternative hypothesis (i.e. Hi), which means (X2c > X2t).
Where the computed value is greater than the table value accept alternative hypothesis
(Hi) and reject null hypothesis (Ho), which means (X2t > X2c).
CHAPTER FOUR
DATA PRESENTATION ANALYSIS
4.1 Introduction
This chapter presents the data collected through questionnaires administered to the
respondents. The analysis of data is done by using frequency, percentage method. The
chapter is presented into two sections, that is the analysis of customer’s responses and
staff members of the bank are done separately.
In all, ninety (90) questionnaires were designed and administered, but only seventy-
eight (78) were filled and returned by the respondents. The respondents comprises of
fifty-eight (58) customers and ten (20) staff members of First Bank Plc. The
questionnaire distribution is shown in the table below:
4.2 Data Presentation and Analysis
This section of the chapter present the analysis of questionnaire distributed to the bank
officials and customers of First Bank, at Usmanu Danfodio University, Sokoto state.
The questionnaire will be presented using percentage tabular method.
Table 4.1: Questionnaire Distribution
Respondents Questionnaire Frequency Percentage
Customers 70 58 73.7
Staff 20 20 26.3
Total 90 78 100
Source: Research Survey (2015).

Table 4.1: Shows that majority of the respondents are the customers with 73.37% of
the total respondents being customers.
4.1A. Data Presentation and Analysis of Customers’ Response
Table 4.1.1: What is the range of your annual income?
Responses Frequency Percentage
Below N100,000 31 35.7
Between N100,001 – N500,000 14 17.9
Between N500,001 – N1,000,000 8 25.0
Above N1,000,001 5 21.4
Total 58 100
Source: Research Survey (2015)
From the table above, 17.9% of the respondents earn less than N100, 000 per annum,
35.7% earn Between N100, 000 to N500, 000 per annum, 25.0% earn Between N500,
000 to N1000, 000 per annum while 21.4% earn will over N1000,000 as annual
income.
Table 4.1.2: Which type of account(s) do you have with the bank?
Current 16 31.5
Savings 37 58.3
Fixed deposits 5 10.2
Others 0 0
Total 58 100%
From the table above, 58.3% of the total respondents are using savings account, 31.5%
of them are using current account, while only 10.2% are using fixed deposits account.
None of them are using order categories.
Table 4.1.3: To which category of customer do you belong?
Private / individual 46 78.6
Corporate 8 14.3
Others 4 7.1
Total 58 100
From the table above, 78.6% of the total respondents are private/ individual customers,
14.3% of them are corporate customers, while only 7.1% are in other categories.
Table 4.1.4: How did you get to know about First Bank Plc?
Through friends 36 35.7
Through advertisement 7 14.3
Through marketing personnel 13 32.1
Others 6 17.9
Total 58 100
The table above shows that 35.7% of the total respondents get to know about First
Bank Plc through their friends, only 14.3% get to know the bank through
advertisement, while 32.1% was through the bank marketing personnel, and 17.9% was
through other means such as brand name and the bank staff.
Table 4.1.5: Would you describe First Bank’s staff as customers friendly?
Yes 40 71.4
No 7 7.1
No idea 11 21.4
Total 58 100%

From the table above, 71.4% of the respondents agreed that the staffs are cordial to
their customers, while 7.1% said No and 21.4% have No idea.
Table 4.1.6: Do you think First Bank uses marketing to know the needs,
preferences and buying behavior of its customers?
Yes 37 92.8
No 15 3.6
No idea 6 3.6
Total 58 100%
The table above shows that 92.8% of the respondents agreed that he bank uses
marketing research to determine its customers’ needs/ preference, 3.6% do not think so,
while another 3.6% said he has no idea.

Table 4.1.7: Have you benefited from any of these products of First Bank Plc?
Western union money transfer 16 32.1
Internet banking 9 14.3
Telephone banking 6 7.1
Smart card 9 17.9
All of the above 12 21.4
None of the above 6 7.1
Total 58 100%
The table above shows that 32.1% of the respondents have enjoyed the bank’s western
union money transfer, 14.3% indicated Internet banking, and 7.1% and 17.9% each
indicated telephone banking and smart card operations respectively. 21.4% indicated
all the services listed, while 7.1% indicated none of them.

Table 4.1.8: Do you think that customers really need the types of services
rendered by First Bank Plc?
Yes 58 100
No 0 0
No idea 0 0
Total 58 100%
Form the table above, all the 58 respondents (100%) believe that First Bank’s products
are really needed by its customers.
Table 4.1.9: In what specific way(s) has First Bank has satisfied your needs better
than other banks?
Lower interest on loan 0 0
Higher interest on deposit s 0 0
Reduced cost of transaction 0 0
Lengthened loan repayment period 0 0
Effective funds transfer 29 50
Others 29 50
Total 58 100%

From the table above, 50% of total respondents confirm that the bank has satisfied their
needs more than any other banks specifically in effective fund transfer. The rest 50%
gave other ways such as quality service, elegant treatment, time consciousness, etc.
Table 4.1.10: How would you rate the quality of service offered by First Bank Plc
to its customers?
Excellent 29 67.9
Very good 15 17.9
Good 7 7.1
Fairly okay 7 7.1
Poor 0 0
Total 58 100%
The table above shows that 67.9% of the total respondents agreed that Firs Bank’s
quality of service is excellent, 17.9% rated the bank’s quality of service as very good,
while 7.1% each rated it as good and fairly okay respectively. None says the quality of
service poor.
Table 4.1.11: What do you dislike about First Bank Plc?
Attitude of staff 0 0
Quality of service 0 0
Time wasting of the counter 8 28.6
Other 50 71.4
Total 58 100%
From the table above, it is clear that none of the respondents dislike First Bank staff
attitude toward customers or its quality of service, 28.6% dislike it time wasting at the
counter, while the majority of the respondents 71.4% dislike other factors such as too
high amount required to open on account, too strict policies, etc.
Table 4.1.12: How does First Bank Plc monitor customer’s satisfaction or
dissatisfaction?
Open door policy 12 21.4
Suggestion box 15 28.6
Customer care unit 23 35.7
No idea 8 14.3
Total 58 100%

From the table above, 21.4% and 28.6% each of the total respondents asserted that the
bank monitors customer’s satisfaction or dissatisfaction by operating open door policy
and suggestion box respectively, 35.7% said customer care unit. While 14.3% of the
respondents have no idea of how the bank does it.
4.1 B. Data Presentation and Analysis of Staff’s Response
The respondents comprise of male and females staff of First Bank plc. They are within
the age range of 20 to 49 years out of the total respondents 10% acquired a degree in
marketing 50% hold degree in related fields, while 10% have undergone special
training(s) in risks management. The rest 30% has a degree of training in other fields
such as economics, sociology, engineering, etc.
Table 4.1.13: Sex distribution
Options Respondent Percentage
Male 13 65
Female 7 25
TOTAL 20 100%
Sources: Research Survey (2015).
The survey reveals that male staffs are higher than female staffs which indicate the
dominance of more in the handling of retail banking than the female.

Table 4.1.14: Management position
Top level 3 15
Middle Level 11 55
Lower level 6 30
TOTAL 20 100%
From the survey, 55% of the staffs are middle level manager and have responsibility to
monitor and control the implementation of policy to guide bank major transactions
Table 4.1.15: Level of education
Secondary certificate 0 0
Diploma 4 20
Degree 14 70
Masters 2 10
PHD 0 0
TOTAL 20 100%
From the survey, it was discovered that 70% of the staffs are degree and masters
holders which indicates that they have the necessary skills to tackle severe situation.
Table 4.1.16: Years of services
Less than 5yrs 8 40
5-10years 9 45
11-20years 3 15
21-30years
TOTAL 20 100%
Sources: Research survey (2015)
From the survey it was discovered that 45% has service years of more than five years
which is a good indication of their expertise in the management of risk associated
situation.
Table 4.1.17: Respondents’ analysis on the term ‘risk’?
Option Frequency Percentage
Uncertainty 9 45
Chance of loss 2 10
Combination of hazard 2 10
All of the above 7 35
TOTAL 20 100%
The survey also reveals that staffs at first Bank have good knowledge of risks and risk
management.
4.1.18: Respondents’ analysis on the term risk management?
Options Frequency Percentage
Control of risk 3 20
Loss exposures 6 30
Economics control 2 10
All of the above 9 40
TOTAL 20 100%
The survey also reveals that staffs at first Bank have good knowledge of the terms risk
management.
4.1.19: Respondents’ analysis on whether bank has section dedicated to risk
management.
Option Respondent Percentage
Yes 20 100
No
TOTAL 20 100%
Sources: Research Survey (2015)
The survey reveals that FBN plc have section dedicated to management which is a
good indications of adequate facility for effective risk management.

4.1.20: If yes, what classification of risk does the bank faced and managed?
Speculative and pure risk
Dynamic and static risk
Particular or personal risk
All of the above 20 100%
TOTAL 20 100%
Sources: Research survey (2015)
The survey also reveals that staffs at first Bank have good knowledge on all of the
above.
4.1.21: Do you believe that risk management is important to your bank?
Yes 20 100
No
TOTAL 20 100%
The survey also reveals that 100% of the staffs FBN plc agree that risk management is
important to the bank. As such a particular section of the organization have been
dedicated to management of situation

4.1.22: If yes, what is the relative risk the bank absorbs and managed?
Operational risk 3 10
Credit risk 4 20
Business risk 13 70
Enterprise risk
Total 20 100%
The survey also reveals that 70% of the staffs agreed with business risk, while 20%
agree with credit risk and 10% agreed with operational risk.
4.1.23: If no, what do you think will improve the performance of the bank?
Management policy 7 40
Diversification of investment portfolios 5 25
Loss prevention system 5 25
Others 3 10
Total 20 100%
The survey reveals that 40% of the staffs have agreed that management policy will
improved the performance of the bank.

4.1.24: Does the bank undertake projects associated with higher risk.
Yes 12 60
No 8 40
Total 20 100%
Sources: research Survey (2015)
The survey reveals that FBN plc is very conscious of risks implications.
4.1.25: If yes, what are the techniques used by the bank to manage loss exposures?
Loss avoiding techniques 2 10
Loss prevention techniques 11 50
Loss retention techniques
Loss reduction techniques 7 40
Others
TOTAL 20 100%
Sources: research Survey (2015)

4.1.26: If no, how do you think your bank survives in such volatile industry?
Free investment 11 50
Personnel of their duties 2 14
Corporate policy 6 35
Others 1 1
TOTAL 20 100%
4.1.27: Do you agree that risk management is part and parcel of First Bank
strategic management.
Strongly agreed 18 90
Agreed 2 10
Disagreed
TOTAL 20 100%
The survey also reveals that the staffs agree that risk management is part of FBN
strategic management.
4.1.28: do you believe that First Bank risk management section have adequate
facilities to manage risks
Yes 20 100
No
TOTAL 20 100%
Source: research Survey (2015)
The survey reveals that the FBN risk management section is efficient. This can be used
to back the argument that First Bank is a very viable financial institution.
4.1.29: If yes, how would you rate the efficacy of the facilities?
Effective 20 100
Not effective
TOTAL 20 100%
The survey reveals that the staffs have 100% of effective facilities
4.1.30: Do you agree that there is a positive relationship between personnel
quality and the quality of risk management at First Bank
Agreed 8 40
Disagreed
TOTAL 20 100%
The survey also reveals that there is a position relationship between personnel quality
and proper risk management. The success/failure have been describe to depend largely
on the commitment of personnel, as such, personnel motivation should be given top
priority.
4.1.31: Does the following factor affect your bank profitability
Fraud 7 35
Falsification of document 3 15
Technological threats 4 20
Falsification of documents 6 30
TOTAL 20 100%

The survey further reveals that FBN faced operational risks situation. The implication
of this is that, the bank must ensure that it recruitment process is screening out
candidate with such potential threats symptoms.
4.1.32: If yes, do you agree that First Bank face operational risks?
Agreed 7 35
Strongly disagreed
Disagreed
Not sure
TOTAL 20 100%
The survey further reveals that FBN faces operational risks situation 100%
4.1.33: Does First Bank Plc operated target market?
YES 20 100
NO
TOTAL 20 100%
From the table above, 100% of the respondents affirmed that First Bank Plc operate
target market
4.3 Test of Hypothesis
The chi-square denoted by the Greek letter (X2) is used in testing the hypothesis
concerning the difference between the observed frequencies of the sample taken for the
study and a corresponding set of the theoretical frequency. Using this method to know
whether the observed response conform to the expected responses.
The hypotheses proposed are tentatively believed to be true, but the result of the
research will validate this assumption. Hence, there comes the need to test all
hypotheses statistically to authenticate the result of the researcher’s findings.
Below are the hypothesis tested.
• Ho – That the relationship between bank officials and customers is not cordial.
Hi– That the relationship between bank officials and customers is cordial.
• Ho – Banks risk practice does not affect turnover.
Hi- Banks risk practice affects turnover.
4.3.1 Test for hypothesis A, from table 4.1.6 (A) observed and expected
frequency.
Answer Observed Expected
Yes 37 19.3
No 15 19.3
No idea 6 19.3
Total 58 58

Chi-Method
X2 calculated
Answer Fo Fe Fo-fe (fo-fe)2 (fo-fe)2

Fe
Yes 37 19.3 17.7 313.29 16.23
No 15 19.3 -4.3 -18.49 -0.95
Not sure 6 19.3 -13.3 -176.89 -9.16
Total 58 58 6.12
X = 6.12
Therefore, X² = 37.454
Degree of freedom (df) = (r-1) (c-1) = (3-1) (2-1) = 2 x 1 = 2
Therefore 0.5 under 2df = 5.99
Decision Rule
The research reject Ho and accept Hi, since the calculated X value of 6.12 (X2=37.454)
is greater than the theoretical X2 value of 5.99.
Therefore, the research is the view that the relationship between bank officials and
customers is cordial.
4.3.2 Test for hypothesis B, from table 4.1.21 (B) observed and expected
frequency.
Answer Observed Expected
Yes 20 6.6
No 0 6.6
No idea 0 6.6
Total 20 6.6
X2 calculated
Answer Fo Fe Fo-fe (fo-fe)2 (fo-fe)2

Fe
Yes 20 6.6 13.4 179.56 27.20
No 0 6.6 6.6 43.56 6.6
No idea 0 6.6 6.6 43.56 6.6
Total 20 20 40.4
X = 40.4
Therefore, X2 = 1632.16
Degree of freedom (df) = (r-1) (c-1) = (3-1) (2-1) = 2 x1=2

Therefore 0.05 under 2df = 5.99
Decision Rule
The research reject Ho and accept Hi, since the calculated X value of 40.4 (X 2=
1632.16) is greater than the theoretical X value of 5.99.
Therefore, the research is of the opinion that the risk management affects turnover.
4.4 Findings and Discussions
There is no doubt about the risk management in banking sector is highly significant 20
qualities were tested and they all valid and accepted. The question already stated above
shows how many staff of financial organization and banking sector realized that risk
management is very important and it is very important in the present economic
situation and they also agree that risk and profit are two sides of the same actions with
regards to first bank of Nigeria P.L.C.
From the investigation based on the research the researcher analyzed following:
a. That the relationship between the bank officials and customers is cordial.
b. That bank risks management practice affects turnover.
c. More customers get to know about First Bank Plc through their friend.
d. Staff of First Bank Plc satisfied his customers more through funds transfer and
other ways such as quality services, elegant treatment, and time consciousness.
e. That, customers are not respecter of any seller or service rendered, but looking for
who will best satisfy their needs.
f. First Bank Plc advertisement is majorly based on creating public awareness and
focusing both new and existing relationship simultaneously.
g. First Bank Plc delivers more efficient financial services to customers than
competitors in the area of innovative customer’s satisfaction.
h. That the bank operates target marketing as means of satisfying their customers.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
The chapter present the summary of chapters contained in this report. We followed the
summary with conclusion and findings drawn from the review literature and the
theoretical analysis of examination of risk management in the Nigerian banking
industry. The chapter was rounded up with recommendation mutually satisfy the needs
of consumers and ensure maximally profitable operations by banks.
5.2 Summary
This research work entitled “An examination of risk management in the banking
industry” is aimed at ascertaining the extent to which financial service delivery satisfy
customers’ needs effectively.
Chapter one of this study contains the introduction and background on the role banking
system on the economic development of any nation. It also emphasis on the concept of
risk in the banking industry which according to CBN in its prudential guidelines means
as-hazard experience by as a result of improper check on capital utilization. The
statement of problem point out that a system does not exist totally immune to the
dynamics of environmental forces most especially the financial institution that operates
on speculative arrangement and poses certain questions related to how the manage such
uncertainty related to their operations. The main objective of the study is to find and
acquire practical means of identifying risks and controlling it using any suitable
techniques available. It also contains the significance of the study; the scope of the
study is limited to the areas only, and finally a hypothesis and chapter scheme.
Literature review of this study involve a complete diagnosis of the reservoir if
information existing in certain books, journals and articles as well as assertion written
by various authors which have some relationship with our areas of study. It highlights
several ways of identifying and controlling it to minimize to a bearable limit as opine
by Shaha (2011), Ernest and Young (1979) Renand and Klinke (1997). Methodology
employed by the research work to obtain the necessary data analyzing the data was
obtained from the secondary source which includes historical and record studying
method. Chapter four deal with data analysis which was obtained during the course of
the research work. It contains the interpretation of respondent response to questions in
the questionnaires distributed and the discussion of the results well as the testing of
hypothesis.
5.3 Conclusion
The study reveals the following finding;
1. That banking business is a very risk one, as the planning and control of such
phenomenon is very paramount to the operations and survival of the banking
institution.
2. The study also reveals that risk management in the banking industry haves
positive correlation with the availability of human capacity.
3. The institution selected for the study reveals that its risks management system
is adequate and strong enough to minimize (or even total avoidance)

inefficiencies and other negative happing in the banks of which only rules and
regulation guiding such control are rigorously adhered to.
Thus an improvement in risk management is believed will greatly improve the level of
profitability of First Bank of Nigeria plc.
Management of risk needs assurance that a company asset are being properly
safeguarded, that reliable information is generated, that operations are running
efficiently, that risk managed and that sophistication of financial products and services
client are requiring nowadays. These are assumed to be the vision of a good
management to control. From the study it was revealed that there was a significant
effect between risk management and profitability of commercial banks. There was a
positive relationship between operational efficiencies and risk management.
However, this system cannot operate efficiently in a vacuum; unfortunately, the
prevailing harsh economic situation in the multitude of banks. Nevertheless negative
banking cultures and others are not immense to positive changes avoidance, reduction
of risk is very important and it is a prerequisite to growth of the banking ministry.
Risk and the like in bank cannot be eradicated completely.
All the same it can be drastically reduced but only if stiffer and understood measures
are taken.
The average citizen regrettably, still tends to look upon banking as something unsigned
in mystery, and this stresses the need for banks to properly coordinate effort to improve
its image in the economy and to restore confidence and trust it assumed before.
5.4 Recommendations
Having examined the issue of risk management and its inadequacies as main causes of
ruin in an organization and having examined its effective operation, the empirical
findings indicates that the relationship between examination of risk management and
banks operational efficiencies and profitability is significant. Thus, the following
recommendations have been drawn.
1. The FBN P.L.C should continue to appraise the risk management apparatus and
block all identified hotspots in their system. In this regards other banks
especially newly established one should followed their footsteps.
2. Bank should provide for adequate salary scale its employees and in improving
the conditions of employee and in minimize the pressure which leads
employees astray.
3. Bank should employ a systematic selection process in recruiting workers.
4. Banks should train workers on the important of risk management.
5. Banks should improve staff motivation and disobedient staff should be
disciplined and reward for faithfully ones.
6. Banks should cooperate with the apex bank (central bank of Nigeria)
government, and processional bodies concerned with the affairs of examination
of risk management in bank.

BIBLOGRAPHY
Bank for International Settlements (2004). Principles of management, press and
Supervision of Risk. Basel Switzerland: Press Communication CH-4002.
Baranoff, E. (2004). Risk Management and Insurance. New York: Longman.
E. Kin (2008): “A Critical Analysis of the Services of the Nigerian Banking Systems”,
Unpublished B.Sc Degree of Banking and Finance, Covenant University, Ota,
Ogun State.
Fayol, H. (1949). General and Industrial Management. New York: McGraw-
Hills.
First Bank of Nigeria Plc (2015). Annual Report and Account. Retrieved at
(www.fbn.com/annualreport), 12/08/2015.
First Bank of Nigeria PeopleFirst Connect 2014-2015
Gitman, P. (2005). Fundamentals of Risk Management, 5th ed. London:
MacMillan Press.
Gordon, A.D. (1984). Introduction to insurance, 2nd Edition. Britain: Pitman
Publishing House.
IRM (2002). Risk Measurement Standard. AIRMIC, IRM.
Jackson, P. (1995). Risk Measurement and Capital. London: Macmillan Press.

Jaifa, M. (2009). Islamic Economics, Banking and Finance. London: McDonald
Press.
Niehaus, H. (1995). Risk Management and Insurance, 2nd ed., USA: Tata McGraw-
Hills.
Okigbo P. (1983): “Reforming the Nigerian Banking System for the 1990”,
Management in Nigeria Journal Vol.8, No 15.
Omowole, S. (1998). Introduction to insurance, 5 th Edition. Akure: Kenny
Graphic Printer, Nigeria.
Owojori, A. and Ishola, R. (2011). Journal of Accounting and Taxation Vol.
3(2), pp. 23-31, June 2011. Available online at
http://www.academicjournals.org/JAT
Panday, I.M. (1999). Financial Management. India: Viskas Publishing House
Limited.
Renand, I. and Kuther, K. (1997). Introduction to Risk Management. Britain:
Oxford University Press Ltd.
Stulz, R.M. (1996). Technology Risk Management in the Banking Industry, 2nd
Edition. London: Sweet and Maxwell Press.
V. Zeithaml (2000): “Service Quality, Profitability and the Economic Worth of
Customers: What We Know and What We Need to Learn”, Journal of
Academics, (2000), Vol. 28, No. 1.

Wikipedia, (2015).
Williams, I. and Heins, A. (1985). Business Practice and Risk Management.
Washington DC: Howard University Press.
Young, E. (1979). Risk Management Business Challenges, 1st Edition.
Englewood: Prentices Hall Inc.

Appendix I
Department of Economics,
Faculty of Social Sciences
Usmanu Danfodio University
Sokoto,
October, 2015.
Dear Sir/Madam
QUESTIONNAIRE (FOR CUSTOMERS)
I am final year student in USMANU DANFODIO UNIVERSITY SOKOTO, pursing a
Bachelor degree in Economics, and carrying out a research work title “Examination of
Risk Management in the Banking Industry” (a case study of First Bank Of Nigeria Plc).
Your cooperation is highly needed in completing this questionnaire which is strictly for
academic purpose. Thank you
Instruction
Please, answer the question below by ticking ( ) in the appropriate column
Sex: Male ( ) Female ( )
Age: 18-29 ( ) 30-39 ( )
40-49 ( ) 50 and above ( )
1. What is the range of your annual income?
a. Below 100,000
b. Between N100,001-N 500,000

c. Between N500,001-N1,000,000
d. Between N1,000,001 and above
2. Which type of account(s) do you have with the bank?
a. Current ( )
b. Savings ( )
c. Fixed deposits ( )
d. Others, (specify)………………………………………..
3. To which category of customer do you belong?
a. Private/individual ( )
b. Corporate ( )
c. Other (specify)…………………………………………..
4. How did you know about First Bank Plc?
a. Through friends ( )
b. Through advertisement ( )
c. Through marketing personnel ( )
d. Others (specify)…………………………………………….
5. Would you describe First Bank Plc’s staff as customer friendly?
a. Yes ( )
b. No ( )
c. No idea ( )
6. Do you think First Bank Plc uses marketing research to know the needs,
preference and buying behavior of its customer’s?
a. Yes ( )
b. No ( )
c. No idea ( )
7. Have you benefited from any of these products of First Bank Plc
a. Internet banking ( )
b. Telephone banking ( )
c. Smart card ( )
d. All of the above ( )
e. None of the above ( )
8. Do you think that customers really need the types of services rendered by First
Bank Plc?
a. Yes ( )
b. No ( )
c. No idea ( )
9. What specific ways has First Bank Plc satisfied your need better than other
banks?
a. Lower interest charges on loans ( )
b. Higher interest paid on deposits ( )
c. Reduction in the cost of transaction ( )
d. Lengthening loans repayment period ( )
e. Effective funds transfer ( )
f. Other (specify)………………………………………………….
10. How would you rate the quality of service rendered by First Bank Plc to
customers?
a. Excellent ( )
b. Very good ( )
c. Good ( )
d. Fair ( )
e. Poor ( )
11. What do you dislike about First Bank Plc?
a. Attitude of staff ( )
b. Quality of services ( )
c. Time wasting at the counter ( )
d. Others…………………………………………………………
12. How does First Bank monitor customer’s satisfaction or dissatisfaction?
a. Open door policy ( )
b. Suggestion box ( )
c. Customer care unit ( )
d. No idea ( )
Appendix II
Department of Economics,
Faculty of Social Sciences
Usmanu Danfodio University
Sokoto,
October, 2015.
Dear Sir/Madam
QUESTIONNAIRE FOR FIRST BANK STAFFS
I am final year student in USMANU DANFODIO UNIVERSITY SOKOTO, pursing a
Bachelor degree in Economics, and carrying out a research work title “Examination of
Risk Management in the Banking Industry” (a case study of First Bank Of Nigeria Plc).
Your cooperation is highly needed in completing this questionnaire which is strictly for
academic purpose. Thank you
Instructions
Please complete the following question to reflect your opinion an accurately as
possible and to answer factual questions to the best of your knowledge. Your
information will be kept strictly confidential.

SECTION A: RESPONDENT PROFILE
1. Gender: male ( ) female ( )
2. Managerial position:
Top level management ( )
Middle level management ( )
Lower level management ( )
3. Level of education:
Secondary Certificate ( )
Diploma ( )
Degree ( )
Masters ( )
PHD ( )
4. Years of service:
Less than 5yrs ( )
6-10yrs ( )
11-20yrs ( )
21-30yrs ( )
31yrs and above ( )

SECTION B
Please tick where appropriate
5. What do you understand by risk?
(a) Risk is uncertainty as to the occurrence of a loss risk is unpredictability of an
unfortunate occurrence ( )
(b) Risk is the chance of loss. ()
(c) Risk is uncertainty attached to certain investment ( )
(d) Risk is a combination of hazard ( )
(e) Please specify if not listed ……………………………………………………….
6. What do you understand by risk management?
(a) Identification, evaluation, and control of risk.
(b) A process that identification loss exposures faced by an organization and select
the most appropriate technique for treating such exposure.
(c) Means the identification, analysis and economic control of those risks, or
earning capacity of enterprises.
(d) All of the above ()
7. Does the bank have a section dedicated to risk management?
(a) Yes ( ) (b) No ( )
8. If yes, what classification of risk does the bank faced and managed?
(a) Speculative and pure risk. ( )
(b) Dynamic and static risk. ( )
(c) Particular or personal risk. ( )
(d) All of the above ( )

9. Do you believe that risk management is important to your bank?
(a) Yes ( ) (b) No ( )
10. If yes, what is the relative risk the bank absorbs and managed?
(a) Operational risk. ( )
(b) Credit risks. ()
(c) Business risks. ()
(d) Enterprise risks. ()
Please specify if not listed…………………………………….
11. If no, what do you think will improve the performance of the bank?
(a) Management policy reducing the level of project risk ()
(b) Diversification of investment portfolios. ()
(c) Establishment of an efficient loss prevention system ()
(d) Please specify if not listed…………………………………………………
12. Does the bank undertake projects associated with high risks?
(a) Yes ( ) (b)No ( )
13. If yes, what are the techniques used by the bank to manage loss exposures?
(a) Loss exposure avoiding techniques. ()
(b) Loss exposure prevention techniques. ( )
(c) Loss exposure retention techniques. ()
(d) Loss exposure reduction techniques. ( )
Please specify if not listed…………………………………………………….

14. If no, how do you think your bank survives in such volatile industry?
(a) Engage in risk free investment. ( )
(b) The commitment of the personnel to their duties. ( )
(c) Corporate policy toward the level of credit facility ( )
(d) Please specify if not listed…………………………………………
15. Do you agree that risk management is part and parcel of first Bank strategic
management?
(a) Strongly agreed ()
(b) Agreed ()
(c) Strongly disagreed ( )
(d) Disagreed ( )
(e) Not sure ( )
16. If yes, how do you rate the bank risk management section?
(a) Satisfactory ( )
(b) Not satisfactory ()
(c) Partially satisfactory ( )
17. If no, how do you think the bank maintains financial stability?
(a) Engage in diversify investment ()
(b) Reduction in the speculative degree of transaction ( )
(c) Prudent relationship with bank customers ( )
(d) Please specify if not listed………………………………………….

18. Do you believe that First Bank risk management section have adequate
facilities to manage risks?
(a) Yes ( ) (b) No ( )
19. If yes, how would you rate the efficacy of the facilities?
(a) Effective ( )
(b) Not effective ( )
(c) Not sure ( )
20. Do you agree that there is a positive relationship between personnel quality and
the quality of risk management at First Bank?
(b) Agree ()
(d) Disagreed ( )
(e) Not sure ( )
21. If yes, do you agree that First Bank have survive this long due to personnel
quality?
(b) Agreed ()
(c) Strongly ( )
(d) Disagreed ( )
(e) Not sure ( )

22. If no, to what extent does unqualified personnel contribute to poor risk
management at First Bank?
(a) Significantly ()
(b) Averagely ()
(c) Insignificantly ()
23. Do the following factors affect your bank profitability?
(a) Fraud
(b) Falsification of documents
(c) Cheque and cash defalcation
(d) Technological threats
24. If yes, do you agree that First Bank face operational risks?
(b) Agreed ()
(d) Disagreed ( )
(e) Not sure ( )
25. Does First Bank Plc operate target market?
(a) Yes ( ) (b) No ( )

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EXAMINATION OF RISK MANAGEMENT IN THE BANKING INDUSTRY:

(A CASE STUDY OF FIRST BANK OF NIGERIA)

UMAR MUHAMMAD GARBA

ADM: NO.: 1011204024

A RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT

OF ECONOMICS, FACULTY OF SOCIAL SCIENCES, USMANU DANFODIO

UNIVERSITY, SOKOTO. IN PARTIAL FULFILMENT OF THE

REQUIREMENT FOR THE AWARD OF BACHELOR OF SCIENCE DEGREE

(B.Sc. HONS) IN ECONOMICS

Abdullahi I Gatawa as part of partial fulfillment of the award of B.Sc. Degree in

Economics, faculty of social sciences, Usmanu Danfodio University Sokoto.

Malan. Abdullahi I Gatawa Date

Prof. Tukur Garba Date

External Examiner Date

This research work is dedicated to my mother, Hajiya Aisha Jummai Bello.

guidance errors escaped.

from the beginning to the end of my degree programme.

My special gratitude and appreciation goes to my project supervisor Malam. Abdullahi

accomplishment for this work.

them all Ameen.

My appreciation also goes to my friends and my course mate in person of Hassan

CHAPTER ONE: INTRODUCTION

1.1 Background to the study 1

1.2 Statement of research problem 4

1.3 Research hypotheses 5

1.4 Objectives of the study 6

1.5 Significance of the study 6

1.6 Scope and limitations of the study 7

1.7 Scheme of the study 7

CHAPTER TWO: LITERATURE REVIEW

2.2 Concept in Examination of Risk Management 9

2.3 Examination of Risk Management process 14

2.5 Challenges of Examination in Risk Management 22

2.6 Solution to Examination in Risk Management Challenge 23

CHAPTER THREE: RESEARCH METHODOLOGY

3.2 Research Design 25

3.3 Population of the study 26

3.4 Sample size and sampling techniques 26

3.4.1 Sampling techniques 26

3.5 Sources and methods of data Analysis 27

3.5.1 Instrument used 28

3.5.2 Administration of the questionnaire 28

3.6 Techniques of data analysis 29

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.2 Data presentation and analysis 31

4.3 Test of hypothesis 51

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION

5.3 Finding and conclusion 57

1.1 Background to the Study

The banking industry as a financial institution is indispensable machinery and plays a

paramount role in the process of economic growth and development. This

acknowledgement is reinforced by contemporary conceptualization of mobilizing

dynamic of business environment therefore has created ambivalences necessitating

condition of uncertainty, thus the analysis of this uncertainty entail processes to

examination of risk management.

danger of loss. The definition can be ''probability of the occurrence of an event

resulting in loss/gain (Rajaram et al 2009).

be in it production, storage, handling, transportation and distribution. The basic process

examination of risk management.

organization identified and understands the risk to which it is exposed. Examination of

effective plan to prevent losses or reduce the impact if a loss occurs.

impact of unforeseen accident. And examination of risk management plan includes

examination of risk management does not need to be expensive or time consuming; it