Credit risk refers to the loss because of the debtor's non-payment of loans or other forms of credit. Credit risks are faced by lenders to consumers, lenders to business, businesses and even individuals. Credit risks, nevertheless, are most encountered in the financial sector particularly by the institutions such as banks. Credit risk management therefore is both a solution and a necessity in the banking setting. The global financial crisis also requires the banks to regain enough confidence by the public not only for the financial institutions but also the financial system in general and to not just rely on the financial aid by the governments and central banks. It is critical for the banks to engage in better credit risk management practices. Nigerian banks are not an exemption.
The Basel Committee on Banking Supervision asserts that loans are the largest and most obvious source of credit risk while others are found on the various activities that the bank involved itself with. Therefore, it is a requirement for every bank worldwide to be aware of the need to identify, measure, monitor and control credit risk while also determining how credit risks could be lowered. This means that a bank should hold adequate capital against these risks and that they are adequately compensated for risks incurred. This is stipulated in Basel II which regulates a bank about how much capital banks need to put aside to guard against the types of financial and operational risks banks face.
2.0 Statement of the Problem
Nonetheless, Basel II was only implemented on June 2004 thus there are banking practices that could not be initially changed especially when it will bring the bank even more risks. The question now is: how does Nigerian banks appraise credit risks today? Specific research questions are as follows:
- How does Nigerian banks performs credit risks management before the implementation of Basel II?
- How does Basel II changes the way Nigerian banks manages credit risks?
3.0 Research Aim and Objectives
The main aim of this study is to analyse credit risk management practices in Nigerian banks. In lieu with this, the following research objectives will be addressed:
- To evaluate the differences of credit risks management in Nigerian banks before and after Basel II implementation
- To assess the changes experienced by the Nigerian banks, adhering to the requirements of Basel II
4.0 Significance of the Study
As such, the completion of this dissertation will provide understanding of the concepts presented so as to generate data and information that every planners could use in order to come up with strategies, plans and designs that will strategically position them in the highly competitive, diverse, and complex business environment that is experienced at present.
By fulfilling the aims that were stated in the objectives section, this study will be helpful for other researchers who may be focusing on understanding the concept of credit risk management. The notable significance of this study is the possibility that other researchers may be able to use the findings in this study for future studies that will create a huge impact in society. This study's findings can be used for other findings that might prove to be helpful in introducing changes to the conduct of the effects of Basel II reporting requirements.
5.0 Research Methodology
The study will explore the problem in an interpretative view, using a descriptive approach which uses observation and surveys. To illustrate the descriptive type of research, Creswell (1994) will guide the researcher when he stated: descriptive method of research is to gather information about the present existing condition. The purpose of employing this method is to describe the nature of a situation, as it exists at the time of the study and to explore the causes of particular phenomena. The researcher opted to use this kind of research considering the desire of the researcher to obtain first hand data from the respondents so as to formulate rational and sound conclusions and recommendations for the study.
Primary and secondary research will be integrated. The reason for this is to be able to provide adequate discussion for the readers that will help them understand more about the issue and the different variables that involve with it. In the primary research, public managers will be surveyed. A structured questionnaire will be developed and it will be used as the survey tool for the study. On the other hand, sources in secondary research will include previous research reports, newspaper, magazine and journal content. Existing findings on journals and existing knowledge on books will be used as secondary research. The interpretation will be conducted which can account as qualitative in nature.
Creswell, J W 1994, Research design. Qualitative and quantitative approaches, Sage Publications, Thousand Oaks, California.