An assessment of risk management practices on loan quality in banking: a case study of First City Monument Bank
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Background of the Study:
Risk management practices are critical for maintaining high loan quality and ensuring the financial stability of banks. First City Monument Bank (FCMB) has implemented comprehensive risk management frameworks to assess, monitor, and mitigate credit risk in its loan portfolio. Between 2023 and 2025, FCMB has enhanced its loan underwriting processes through the integration of advanced risk assessment tools, data analytics, and continuous monitoring systems (Adeniyi, 2023; Okeke, 2024). These practices aim to reduce the incidence of non-performing loans and improve overall loan quality by ensuring that credit is extended only to borrowers with strong repayment capacities.
Effective risk management not only protects the bank’s assets but also contributes to customer and investor confidence. FCMB’s proactive approach involves regular reviews of credit policies, stress testing of loan portfolios, and timely adjustments to lending criteria based on market conditions. However, challenges such as data integration issues, evolving economic conditions, and regulatory changes can affect the consistency and effectiveness of risk management practices. This study seeks to evaluate the impact of these practices on loan quality by analyzing quantitative performance metrics and qualitative insights from risk management teams, with the objective of identifying areas for further improvement (Ibrahim, 2025).
Statement of the Problem:
Despite robust risk management frameworks, FCMB continues to experience challenges in maintaining high loan quality. Inconsistencies in risk assessment, delays in updating underwriting criteria, and integration issues between new analytical tools and legacy systems contribute to the persistence of non-performing loans (Okeke, 2024). These challenges result in a higher level of credit risk and can undermine the bank’s profitability and reputation. External economic shocks and regulatory shifts further complicate the risk management environment, making it difficult to sustain stringent credit standards. Additionally, internal communication gaps between the risk management and lending departments may lead to suboptimal credit decisions. This study aims to investigate these challenges, assess their impact on loan quality, and propose recommendations to enhance risk management practices for better credit outcomes.
Objectives of the Study:
To evaluate the impact of risk management practices on loan quality at FCMB.
To identify factors contributing to non-performing loans.
To recommend strategies for optimizing credit risk management.
Research Questions:
How do current risk management practices affect loan quality?
What are the key challenges in maintaining high loan quality?
What improvements can enhance the effectiveness of risk management practices?
Research Hypotheses:
H1: Effective risk management practices significantly improve loan quality.
H2: Data integration issues negatively affect credit risk assessment.
H3: Enhanced inter-departmental communication reduces non-performing loans.
Scope and Limitations of the Study:
The study focuses on FCMB’s risk management practices from 2023 to 2025. Limitations include the influence of external economic factors and potential data accuracy issues.
Definitions of Terms:
Risk Management Practices: Strategies and procedures to identify and mitigate credit risk.
Loan Quality: The performance and reliability of a bank’s loan portfolio.
Non-performing Loans: Loans in which borrowers are unable to make scheduled payments.
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