The Role of IFRS in Enhancing Credit Risk Management in Nigerian Banking Sector
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Background of the Study
Effective credit risk management is essential for the stability and profitability of banks. The adoption of IFRS, particularly IFRS 9, which addresses financial instruments and expected credit losses, provides a framework for more accurate credit risk assessment and provisioning. This study explores the role of IFRS in enhancing credit risk management practices in the Nigerian banking sector, focusing on improvements in risk assessment, loan provisioning, and credit loss reporting.
Statement of the Problem
Before the adoption of IFRS, many Nigerian banks relied on outdated credit risk management frameworks, leading to inadequate provisioning and exposure to bad loans. IFRS offers a robust framework for credit risk management, but the extent to which it has been successfully implemented in Nigerian banks remains unclear. This study investigates whether IFRS adoption has improved credit risk management practices in Nigerian banks.
Aim and Objectives of the Study
The primary aim of this study is to examine the role of IFRS in enhancing credit risk management in Nigerian banks.
Specific objectives include:
- To analyze the impact of IFRS 9 on credit risk assessment practices in Nigerian banks.
- To evaluate the effect of IFRS adoption on loan provisioning and expected credit loss calculations.
- To assess the challenges faced by Nigerian banks in implementing IFRS 9 for credit risk management.
- To explore the relationship between IFRS compliance and the reduction of non-performing loans (NPLs) in Nigerian banks.
Research Questions
- How has IFRS 9 impacted credit risk assessment practices in Nigerian banks?
- What is the effect of IFRS adoption on loan provisioning and expected credit loss calculations?
- What challenges do Nigerian banks face in implementing IFRS 9 for credit risk management?
- How does IFRS compliance relate to the reduction of non-performing loans in Nigerian banks?
Research Hypotheses
- IFRS 9 adoption has significantly improved credit risk assessment practices in Nigerian banks.
- IFRS adoption enhances loan provisioning and reduces non-performing loans in Nigerian banks.
- Nigerian banks face significant challenges in implementing IFRS 9 for credit risk management.
Significance of the Study
The study provides insights into how IFRS adoption has transformed credit risk management practices in Nigerian banks, helping stakeholders understand the benefits and challenges of IFRS compliance. The findings will be valuable for regulators, bank executives, and policymakers.
Scope and Limitation of the Study
The study will focus on selected Nigerian banks that have adopted IFRS, with particular emphasis on the implementation of IFRS 9. Limitations may include variations in compliance levels and data accessibility.
Definition of Terms
- IFRS 9: International Financial Reporting Standard dealing with financial instruments and expected credit loss calculations.
- Credit Risk Management: The process of identifying, assessing, and mitigating risks associated with lending activities.
- Non-Performing Loans (NPLs): Loans that are in default or close to being in default.
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