{"title":"Assessment of the Impact and Challenges of Basel II Implementation on the Risk Management Practices In Nigerian Banks","authors":"Síkírù Sàlámì","doi":"10.2139/SSRN.2569556","DOIUrl":null,"url":null,"abstract":"Risk management plays an important role in ensuring the safety and survival of banking institutions. Basel II Accord is an international regulatory attempt aimed at strengthening the risk management practices in the internationally active banks. The Basel II Accord is the framework developed in 1999 by the Central Banks of G10 countries to regulate the risk management process in large internationally active banks in their domains and in the Organization for Economic Cooperation and Development (OECD) member countries. The framework was issued principally to address the issue of the minimum capital requirements that have to be kept aside by banks, to be able to face any economic stress, and for protecting the international financial system from financial crises that could lead to the collapse of banks. This research examines the impact and challenges of Basel II on the risk management practices in Nigerian banks, and the extent of progress the banks have made in implementing the Accord within the milieu of the Central Bank of Nigeria’s guidelines. The sample population comprised all the banking institutions in Nigeria, including commercial banks, mortgage banks, finance houses and merchant banks. A random sample of 15 commercial banks was taken from which sampling units of 60 respondents with risk and control functions were purposively selected from each of the sampled banks. What informed the choice of the commercial banks as the sample source was because the Central Bank of Nigeria appeared to have considered the commercial banks as the centre focus of Basel II implementation for a start. Four hypotheses were formulated to validate the observations that necessitated the study. All the hypotheses were tested at 0.05 level of significance using the ANOVA, regression and t-test models. The following findings were made from the study after testing the hypotheses formulated for the study: All the Nigerian banks face almost the same sets of challenges in implementing Basel II requirements; the Basel II Accord caused significant change in capital measurement and allocation; the Accord has improved the risk management practices in Nigerian banks, and Nigerian banks have made some progress in Basel II implementation project. At the end of the research, it was recommended that the Central Bank of Nigeria increase the level of awareness on Basel Accord; that the CBN should immediately enforce the Basel II regulations on all operators in the banking industry rather than focusing on commercial banks; that the banks should enlighten their Boards and senior management staff on the implications of Basel Accord on the banks’ businesses, and finally that the banks should find smarter ways to raise further capital in response to Basel II requirement.","PeriodicalId":138725,"journal":{"name":"PSN: Markets & Investment (Topic)","volume":"270 ","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"2014-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"PSN: Markets & Investment (Topic)","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/SSRN.2569556","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
Risk management plays an important role in ensuring the safety and survival of banking institutions. Basel II Accord is an international regulatory attempt aimed at strengthening the risk management practices in the internationally active banks. The Basel II Accord is the framework developed in 1999 by the Central Banks of G10 countries to regulate the risk management process in large internationally active banks in their domains and in the Organization for Economic Cooperation and Development (OECD) member countries. The framework was issued principally to address the issue of the minimum capital requirements that have to be kept aside by banks, to be able to face any economic stress, and for protecting the international financial system from financial crises that could lead to the collapse of banks. This research examines the impact and challenges of Basel II on the risk management practices in Nigerian banks, and the extent of progress the banks have made in implementing the Accord within the milieu of the Central Bank of Nigeria’s guidelines. The sample population comprised all the banking institutions in Nigeria, including commercial banks, mortgage banks, finance houses and merchant banks. A random sample of 15 commercial banks was taken from which sampling units of 60 respondents with risk and control functions were purposively selected from each of the sampled banks. What informed the choice of the commercial banks as the sample source was because the Central Bank of Nigeria appeared to have considered the commercial banks as the centre focus of Basel II implementation for a start. Four hypotheses were formulated to validate the observations that necessitated the study. All the hypotheses were tested at 0.05 level of significance using the ANOVA, regression and t-test models. The following findings were made from the study after testing the hypotheses formulated for the study: All the Nigerian banks face almost the same sets of challenges in implementing Basel II requirements; the Basel II Accord caused significant change in capital measurement and allocation; the Accord has improved the risk management practices in Nigerian banks, and Nigerian banks have made some progress in Basel II implementation project. At the end of the research, it was recommended that the Central Bank of Nigeria increase the level of awareness on Basel Accord; that the CBN should immediately enforce the Basel II regulations on all operators in the banking industry rather than focusing on commercial banks; that the banks should enlighten their Boards and senior management staff on the implications of Basel Accord on the banks’ businesses, and finally that the banks should find smarter ways to raise further capital in response to Basel II requirement.