Bank Performance Based on Return on Equity: The Relationship with Enterprise Risk Management Indicators
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In this study, the researchers provide a fresh examination on the nexus
between return on equity and enterprise risk management indicators for a panel of
Nigerian banks using pooled OLS, WG-VC and flexible GLS methods. The study aims to
determine whether the relationship with ERM will improve the performance (return on
equity) of the Deposit Money Banks. The findings show that the chief risk officer,
members of the risk committee, and derivative instruments for hedging foreign
exchange rate risk have a positive impact on return, while risk mapping and derivative
instruments for hedging credit risk maintain a positive relationship with return on
equity. Banks have continued to fail due to high levels of non-performing loans, poor
corporate governance, negligent credit administration, and failure to meet liquidity
and capital ratio prudential ratios. The result clearly showed that enterprise risk
management is a positive driver of return on equity. The study concludes that return on
equity increase with an increase in risk committee member and derivative instrument
for hedging foreign exchange risk, while the other three ERM indicators and return on
equity move in a different direction, that is a negative relationship is evident. Financial
institutions should weigh the risk vs the potential rewards to decide whether the risk is
worthwhile. They can benefit from risks that are worthwhile taking as a result both in
the short and long term.
Keywords
HF Commerce, HF5601 Accounting, HJ Public Finance